The Louisiana Capitol Building, April 8, 2021. (Wes Muller/Louisiana Illuminator).
Gov. John Bel Edwards and the Louisiana Legislature have $1.6 billion more to spend over the next 18 months after a state panel adopted far rosier revenue projections Tuesday.
Louisiana expects to collect $1.2 billion more in general fund revenue than projected in its current state budget cycle, which ends June 30, and $770 million more than projected in its next budget cycle, which starts July 1.
In both budget cycles, the additional revenue is mostly due to higher-than-expected individual income and general sales tax collections. Corporate tax collections have also increased.
State economists attribute the higher tax collections to a mix of the federal spending surge, hurricane recovery, higher wages and an economy rebounding from pandemic-related shutdowns.
Out of the $1.2 billion in additional general fund revenue collected this year, $400 million will automatically be used to pay back a federal loan used to build a better levee system in the New Orleans area after Hurricane Katrina. That still leaves the governor and lawmakers with an additional $1.6 billion in new money to spend over this budget cycle and the next.
The $1.6 billion is also not the only extra money available. It comes on top of $1.4 billion in federal pandemic relief funds the state has yet to spend and a budget surplus from last year that is currently estimated to be over $500 million. The budget surplus number will be finalized later this year.
Unlike the federal pandemic money and the budget surplus, there are essentially no restrictions on how the $1.6 billion recognized Tuesday can be spent. Lawmakers can use the money for any purpose they desire.
Over the past two years, the Louisiana Legislature has prioritized much of its excess funding for road and bridge projects. On Tuesday, Senate President Page Cortez, R-Lafayette, said he anticipates using at least some of the money for those purposes again. Some bridge and road projects the Legislature recently approved need more money than expected because of inflation and an increase in building material costs, he said.
Cortez said higher education campuses could also benefit. Several state universities and colleges have severe maintenance needs. Part of Southern University’s Baton Rouge campus is falling into the Mississippi River, endangering at least one building. LSU basketball coach Will Wade recently complained about roof leaks in the Pete Maravich Assembly Center, and the school’s main library has also – for years – had water damage.
Fixing the local water and sewerage infrastructure is also a priority, though it’s likely some of the $1.4 billion in federal pandemic relief funding will be earmarked for that purpose, Cortez said. The state allocated $300 million in federal funds for the water systems last year, but Louisiana has billions of dollars of unmet water system needs.
Some of federal pandemic money could also go to strengthening the state’s unemployment trust fund. Louisiana, along with several other states, depleted its unemployment trust fund in the early days of the COVID-19 pandemic, when there was a surge in people applying for unemployment assistance.
Parishes severely affected by Hurricane Ida, like Lafourche and Terrebonne, will also probably see extra money. Last year, a portion of the pandemic federal relief funding was spent on Southwest Louisiana parishes devastated by hurricanes Laura and Delta.
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Louisiana may also take in even more money than what is included in the official revenue projections. One of Louisiana’s two state economists estimated an even greater increase in revenue collections for this budget cycle and next.
But the state’s revenue estimating conference – the group that oversees Louisiana’s financial projections – adopted the lower of the economic estimates offered to them Tuesday.
The panel, which includes Cortez, House Speaker Clay Schexnayder, Edwards’ budget chief Jay Dardenne and economist Stephen Barnes, are intentionally taking a conservative approach.
While the state is flush with money now, the surge in economic activity is expected to level off as federal assistance for the pandemic and spending after the recent hurricanes lessens.
Cortez said the state also has to prepare itself for a decrease in revenue in July 2025, when the sales tax rate is scheduled to drop from 4.45 percent to 4 percent. Currently, that sales tax revenue is used to pay for health care services, K-12 schools, prisons and higher education. The tax cut will decrease the amount of money available for those services.
The ghost of Louisiana’s last fiscal crisis also looms over Edwards and the current legislative leaders, who spent several years building the state back up to solid financial ground.
Over a decade ago, elected officials cut taxes in response to a surge in state revenue from Hurricane Katrina rebuilding efforts. When the money from Katrina recovery eventually fell off, Louisiana was left with several years of budget problems. Edwards and legislators eventually had to raise taxes again to avoid massive cuts to health programs and public universities.
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