Political Horizons for Feb. 1, 2009

• By MARK BALLARD
• Advocate staff writer
• Published: Feb 1, 2009 - UPDATED: 12:05 a.m.

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A great wailing and gnashing of teeth will start this week and last through the spring as state government tries to figure out how to reconcile a budget that costs roughly $1.65 billion more than is expected to be collected in taxes and fees for the fiscal year that starts in July.

Louisiana officials have gone from arguing last summer over how to spend almost $1 billion left over, to making massive cuts in state services this summer.

Basically, state government’s budget swelled with disaster-recovery monies from the federal government and private insurance.
People spent to get back on their feet after the 2005 hurricanes. They bought new appliances and new cars. They hired a lot of workers to rebuild. The price of oil and natural gas went up.

In the weeks after hurricanes Katrina and Rita, the Louisiana Legislature made cuts all over state government. But as the money came rolling in, the Legislature and the Blanco administration reversed those cuts. The Jindal administration did little to slow the growth. Teachers got their much-delayed pay raise, and the business community saw taxes slashed, as did some wage-earners. More tax breaks are in the pipeline.

Government itself is doing a lot more than a decade ago. For instance, there’s a community college system now. And nearly one-fourth of the population now relies on government-run Medicaid for health care.

Meanwhile, revenue collections — particularly from sales, personal income and corporate income taxes — fell. Taxes on oil production are tied to the value per barrel, and oil prices have tumbled from about $150 per barrel to around $40. The federal government’s disaster recovery contributions are pretty much over.

Simply put: State government costs more at a time when state taxpayers are contributing less.

“Part of this downturn was foreseeable,” said state Treasurer John N. Kennedy. Economists who have studied the economic consequences of high-intensity storms have charted the outcome time and again: Disaster relief money stimulates the local economy for a short period.

“But it never lasts,” Kennedy said. “We should have prepared for this.”

The pain of the national recession is less here than elsewhere. Louisiana doesn’t have the big durable goods manufacturing plants that other states do. Still, as factories around America tool down, this state’s energy, chemicals and plastics products are not selling as well.

For Fiscal Year 2008, state government took in about $10 billion, not including federal monies. For 2010, those revenue projections are down to around $8 billion from Louisiana sources, according to the Legislative Fiscal Office.

“Now you’re going to have to make a decision,” said Greg Albrecht, the chief economist in the Legislative Fiscal Office. “Look at your budget. You look at the costs and you make the call.”

The choice is either roll back tax breaks to increase revenues or cut the size of state government to decrease costs.