Louisiana Spotlight: Boosted income forecasts muted by 'fiscal cliff'

Because Louisiana remains mired in budget uncertainty, the state’s recent rounds of improved financial news have gotten little notice, despite the hitting of a few significant milestones.
Louisiana is sitting on a surplus from last year and is on track to avoid a midyear deficit for the first time in nearly a decade, after grappling with 15 midyear budget gaps in nine years. At the most recent state income forecasting meeting, projections were boosted by $387 million over the next 18 months. And Louisiana’s Medicaid program is currently running under-budget.
All of that, however, gets clouded by the impending uncertainty of next year — and a looming, self-inflicted budget gap that sits at right around $1 billion.
But first the good news.
—Louisiana has a $120 million surplus from the prior budget year that ended June 30, largely sales and personal income taxes collected above what was budgeted. The dollars must be spent on one-time expenses, such as debt payments and construction work.
—State income forecasts were boosted by $153 million for the current budget year and by nearly $234 million for the budget year that begins July 1, giving lawmakers more money to spend. The improvements were largely driven by better-than-expected sales tax collections, and also by slight upticks to corporate and severance tax expectations.
—Louisiana’s Medicaid program is spending at a slower pace than expected and could leave the state with a surplus in six months if expenditures remain on their current path. The latest forecast shows the $12.5 billion health program may spend as much as $650 million less than projected. While most of that amount would be unused federal spending authority that can’t be reallocated to other state government programs, the Department of Health says about $30 million would be state general fund money that could be spent elsewhere.
The announcements are among the first financial bright spots for the Edwards administration since it took office in January 2016, inheriting a dismal budget picture riddled with shortfalls and uncertainty. The Democratic governor noted the upswing in a recent speech, crediting an improving Louisiana economy and what he described as prudent spending policies.
“It’s been a long time since the state of Louisiana talked about surpluses,” Edwards said.
The celebration didn’t last long, as the governor immediately shifted to the point of the speech he was giving: the $1 billion gap — nicknamed the “fiscal cliff” — that hits when the next budget year begins July 1 and temporary sales taxes enacted by lawmakers expire.
“Even though our revenue projections for next year are increased, it is not enough to solve the problem,” Edwards grimly assessed.
With the latest income estimate revisions, general state tax collections are expected to shrink by $994 million, from nearly $9.6 billion this year to $8.6 billion next year. And the state’s economists warned the long-term picture remains shaky, as Louisiana’s oil and gas industry is stagnant.
Republican Senate President John Alario quipped that it’s not time to “go out and break the champagne bottle” about the forecast improvements.
Lawmakers may be able to use some of the unspent dollars from this year to try to help with next year’s expenses, but they can’t use the surplus from last year to close part of the gap.
Under Louisiana’s constitution, surplus dollars can only be spent on certain one-time expenses, like debt payments, construction work and coastal projects, not ongoing agency expenses and continuing programs. At least 10 percent of any surplus is supposed to pay down retirement debt, and a quarter of a surplus is earmarked for the state’s “rainy day” fund.
In other words, no bailout for the $1 billion problem is on the horizon, and officials estimate that shortfall could balloon to as much as $4 billion in cuts with the loss of federal matching dollars.
Despite the recent spate of more positive financial news, Edwards and lawmakers will be haggling over the same thing in 2018 that they’ve been debating since the governor took office, whether to pass taxes or cut spending.
Deslatte has covered Louisiana politics for The Associated Press since 2000. Follow her at http://twitter.com/melindadeslatte