On Wednesday, Commissioner of Administration Jay Dardenne announced the current fiscal year deficit decreased to $304 million from the original $313.5 million recognized by the Revenue Estimating Conference Friday.
The change stems from a $9 million reduction in debt service payments after recalculations from the state treasurer’s office, Dardenne said. Though helpful, the minor reduction creates little change in the state’s financial situation, he said.
“It’s better than our earlier number but it is still going to result in significant cuts,” Dardenne said. “There’s no way around a reduction in services in areas that we have always deemed critical like higher education and health care.”
The likelihood of a special legislative session increased Friday after the Revenue Estimating Conference recognized a $313.5 million shortfall in the current fiscal year’s budget.
Nearing the close of the conference, Commissioner of Administration Jay Dardenne called a special session “inevitable” and said Gov. John Bel Edwards’ administration will call on the Legislature to tap into the state’s rainy day fund to provide $119 million to address the shortfall.
On Tuesday, state politics reporter Greg Hilburn reported in the The News-Star that House Republicans intend to reject requests to tap into the state’s rainy day fund. Without the $119 million relief the fund would provide, legislators will be forced to cut general fund spending more deeply, likely resulting in increased cuts to higher education and health care.
Unprotected under the state constitution, higher education is a frequent target of budget cuts in the state’s ongoing financial crisis. In December, the Joint Legislative Committee on the Budget cut $11.9 million from state colleges and universities to help cover a $313 million deficit carried over from the previous fiscal year.
Of the $11.9 million in cuts, the LSU System absorbed $8.5 million. LSU President F. King Alexander said the cut is the 16th the University system has shouldered in nine years.
Edwards said in a statement Friday that he is unwilling to place the majority of the state’s fiscal burden on already depleted spending areas.
“I have said all along that I am not willing to place the burden of this budget crisis only on the backs of our hardworking families, students or our most vulnerable citizens,” Edwards said. “The entirety of the state’s budget must be opened up in order to make these cuts, otherwise they will be concentrated in a few areas and the impact would be too painful for our people to bear.”
While lawmakers anticipated a midyear deficit for several months, official recognition of the shortfall was delayed in December in the hopes that a spike in taxes and fees collections would lessen the deficit. Despite the extension, collections are still down from initial forecasts.
Chief state economist Greg Albrecht said sales tax revenues are down $33 million from original projections despite post-flood spending and the recently expanded tax base. Vehicle sales taxes, which saw notable increases beginning in September, declined to normal levels and are not expected to spike again, Albrecht said.
Income tax collections are also down by roughly $200 million from initial projections, Albrecht said. The drop resulted from continued declines in employment across the state, with job losses in mining, manufacturing, transportation and finance, he said.
As of August 2016, Louisiana has lost 26,000 jobs since December 2014, when the state reached peak non-agricultural employment. Metropolitan areas, including Baton Rouge and New Orleans, are experiencing modest growth, while the non-metro parishes and energy-dependent areas have seen sharp declines.
“For all practical purposes, we’ve lost jobs in the highest paid sectors and what we have gained is in the lowest paid sectors,” Albrecht said.
Corporate tax collections also declined, with Albrecht projecting total collections reaching $412 million for the current fiscal year. Increases in oil and gas prices created a modest lift to the economy, but too little to create significant change, Albrecht said.
“The economy is still fairly weak, and the tourist economy too,” he said. “That’s unfortunately my story, and I have to stick to it.”
Official recognition of the shortfall will be discussed at a Joint Legislative Committee on the Budget meeting Jan. 27. Gov. Edwards is expected to call a special legislative session in February, likely between Feb. 13 and Feb. 28.
Editor’s note: This story was updated to reflect a change in the shortfall.