Louisiana releases preliminary plan to address $500 million shortfall

Louisiana releases preliminary plan to address $500 million shortfall

BATON ROUGE, LA (WAFB) - The Louisiana Division of Administration released a plan Wednesday aimed at fixing a mid-year, $500 million shortfall in the state's budget for the 2016 fiscal year.

Under the Jindal administration's proposal, higher education would not see any cuts. Money from the rainy day fund would be used to protect state colleges and universities.

Other departments would take large cuts, with the Department of Health and Hospitals seeing its budget slashed by $340 million. That includes taking $53.5 million from the Medical Assistance Trust Fund, which received tax revenues exceeding projections.

DOTD would face a $50 million cut.

There was some good news. The budget gained an unforeseen $17 million from FEMA for a match-rate increase, reimbursing Louisiana for spending during Hurricane Isaac.

On Monday, the Revenue Estimating Conference (REC) reduced their original forecast for this fiscal year from $8.85 billion to $8.48 billion, meaning the state's estimated income is $370 million less than anticipated. In addition to that, the state has a $117 million deficit left over from the 2015 fiscal year.

Commissioner of Administration Stafford Palmieri said there are a variety of factors possibly impacting the reduced state income. She said chief among them was a shortfall in money from corporations.

"Corporate revenues was about $200 million less than we anticipated," Palmieri said.

Many corporations in the state took advantage of tax credits in an advance of state tax party, ultimately costing the state millions. While the state original forecasted an income of $790 million from corporations, that estimate has since been lowered to $588 million for the 2016 fiscal year.

Another possible factor was low oil prices. At the begin of the fiscal year, REC estimated an oil cost of around $61.70 per barrel. Instead, the cost has rested around $45 per barrel, even hovering as low as $42 recently. For each dollar change in the cost of oil, the state reportedly loses about $12 million in revenue.

The REC reports that royalties from oil pumped on state lands is now projected to bring in $228 million, in contrast to the $307 originally predicted. They said the fluctuating oil prices have also decreased state revenue from personal income taxes and sales taxes.

Still, officials at the Louisiana Budget Project (LBP) said the shortfall is the result of more than just bad estimates.

"Oil prices are certainly part of it, and lower oil prices don't help. But the sad truth is the vast majority of our deficit problems are self-inflicted wounds," said Steve Spires, senior policy analyst for LBP.

Mid-year budgetary shortfalls have happened every year since at least 2009. However, the $500 million this year is by far the largest.

"You reap what you sow. Back in 2007 and 2008, we passed very large tax cuts that benefited the wealthy. Over the last decade, we've been spending more and more in tax subsidies to try to lure corporations here," he said.

Spires said those tax credits are not working as well as they could.

"The reality is that we often end up writing these companies very large checks, and the money that we give to them is money we can't spend on roads or schools," Spires said.

Spires said the solution is tax reform.

"It's not going to be easy. It's certainly a political challenge," he said.

Both candidates for governor have called for special sessions aimed at addressing the budget.

The Jindal proposal will now formally be presented before the Joint Legislative Committee on Budget at a meeting on Friday, where they will have a chance to vote on certain, larger cuts exceeding 3 percent.

Meanwhile, raiding the rainy day fund to protect higher education requires a vote from the full legislature within the next month.

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