Louisiana may face tough budget decisions because of lower tax and fee collections

It’s not clear yet how much federal funding might offset any state budget cuts

By: - January 19, 2021 1:06 pm
Louisiana Capitol Building

The Louisiana Legislature ended its regular session Thursday. (Photo by Julie O’Donoghue)

Louisiana state tax and fee collections will not return to their pre-pandemic levels until at least 2022 or later, according to estimates released from the two state economists who calculate the state’s revenue projections. 

General state tax and fee collections are expected to be lower overall for the next 18 months than they were in the last budget cycle because of COVID-19, the economists predict, making it more likely that the state government will have to make budget cuts later this year.

Louisiana’s Revenue Estimating Conference projected Tuesday (Jan. 19) that the state will take in about $379 million less in general funds in the current budget cycle than it did in the previous budget cycle, which ended June 30. That loss has already been backfilled by moving $90 million from a reserve “rainy day” fund into the state’s general fund and redistributing hundreds of millions of federal dollars. 

But the depressed revenue is expected to continue into the next state budget cycle too. Revenue collection for the general fund in the last budget cycle — mostly unaffected by COVID — was $9.8 billion. It is expected to be $9.5 billion in the current cycle and is only projected to go up to $9.6 billion for the next cycle that starts July 1, according to the state’s latest official estimate. 

That drop in revenue would normally mean the state would have to prepare for major budget cuts, but federal pandemic funding many offset the decreases.

The Associated Press reports that Louisiana is supposed to receive $2 billion from the package passed by Congress in December to deal with the coronavirus. The state is still trying to figure out what restrictions have been placed on that money that could prevent it from helping with the budget shortfall.

“We’re still in the middle of putting that together,” said Jay Dardenne, who leads the budget-writing efforts for Gov. John Bel Edwards. “We’re going to know a lot more in two months.”

Once President-elect Joe Biden takes office, Congress could also put even more federal funding relief on the table for Louisiana — and that could also affect how large any state budget cuts would need to be.

“We fully expect to get more stimulus dollars,” said Senate President Page Cortez, R-Lafayette, a member of the Revenue Estimating Conference.

Cortez said he does worry any pandemic money coming from the federal government after Biden becomes president might not arrive in time to help prop up the state budget. Congress still has to negotiate the new package. The legislature usually votes on Louisiana’s new budget in June, right before it takes effect in July.

But Cortez said the funding poured into Louisiana by Congress in December could eventually help buoy the state’s economy. Money that schools might receive to build out the broadband network — for example — should bring jobs to the state, he said.

Greg Albrecht, one of the state’s two economists, said federal support has been propping up the state’s economy already. He credited the federal stimulus checks and enhanced unemployment benefits for keeping Louisiana afloat during the last 10 months, when many businesses were shuttered.

“The income support we’ve gotten from the federal government is what has gotten us to where we are today,” he told lawmakers.

Albrecht also indicated that Louisiana might take longer to recover from the pandemic recession than the rest of the country. Car sales and casino revenue has surged in the past several months, but sales tax revenue and some oil and gas taxes are still down, he said.

Typically, Louisiana state government experiences a bit of an economic boom after a major hurricane because people have to spend money to rebuild their homes and businesses. But Albrecht said whatever extra money hurricanes Laura and Delta recovery might have produced for the state was “overwhelmed” by the pandemic losses. The economy would have a hard time recovering it was dealt another blow right now, Albrecht said.

“I think the economy here is very vulnerable to shocks,” he said. “Negative shocks to this economy, we’re very tenuous.”

If state budget cuts are needed later this year, they would likely hit higher education and health care services hardest. Many other areas of spending are protected by state law, making them harder to reduce.

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Julie O'Donoghue
Julie O'Donoghue

Julie O’Donoghue is a senior reporter for the Louisiana Illuminator and producer of the Louisiana Illuminator podcast. She’s received awards from the Virginia Press Association and Louisiana-Mississippi Associated Press. Julie covered state government and politics for NOLA.com | The Times-Picayune for six years. She’s also covered government and politics in Missouri, Virginia and Washington D.C. Julie is a proud D.C. native and Washington Capitals hockey fan. She and her partner, Jed, live in Baton Rouge. She has two stepchildren, Quinn and Steven.