State faces more budget cuts to meet sharp drop in projected revenue

04 25, 2012 by The Times-Picayune

The state budget picture got bleaker Tuesday night as officials chopped $210.5 million from revenue projections for the year. The change could mean a scramble to keep the budget balanced through the end of June, when the current budget year ends, and sharp cuts to fill an unanticipated $303.7 million shortfall in next year's spending plans.

The reductions are largely driven by lower than expected income tax revenue, which officials told the Revenue Estimating Conference Tuesday were a sign of the lingering impacts of the national recession. The panel unanimously approved the reduced forecasts, which will cut expectations for next year's general fund revenue by more than 3.6 percent.

Commissioner of Administration Paul Rainwater, one of the four members of the panel, said agencies have been put on notice that revenues were expected to be down and that the administration would work with legislators and Cabinet members to find savings.

"We'll have a balanced budget at the end of the year," Rainwater said.

The Louisiana House Appropriations Committee is expected to begin the heavy lifting on next year's budget on Tuesday, said Rep. Jim Fannin, D-Jonesboro, the committee's chairman.

"I brought my chainsaw back when I came back this weekend so we can cut, cut, cut," Fannin said after the meeting.

It remains to be seen how the reductions will play out, though officials said they would work to keep higher education and the Department of Health and Hospitals, the two main areas of discretionary spending, from bearing the full burden. "How can you keep anybody from cuts?" Fannin asked. "We're all going to have to participate."

That sentiment was echoed by Gov. Bobby Jindal in a news conference following the panel's decision. The governor said, however, he was looking to protect both higher education and health care in particular.

"We're going to have to look at every dollar government spends, look at every state agency," Jindal said.

In adopting an official forecast for the rest of this budget year, officials opted to take elements from forecasts developed by the Division of Administration, which predicts a total shortfall of $270 million, and the Legislative Fiscal Office, which predicted a milder $106.9 million drop in revenue. The two estimates for next year are closer and the Revenue Estimating Conference opted to go with the Division of Administration's more pessimistic outlook instead of the Fiscal Office's prediction of a $289.5 million drop.

In addition to the steep drop in projected income tax revenue, which is expected to be at least $186.6 million less this year than projected, the reduced revenue figures also take into account similarly disappointing results from corporate tax revenues and a less severe drop in expected sales tax revenue.

The difficulties of coming up with accurate predictions based on years when disasters, recessions and changes in the oil markets have thrown traditional models into disarray.

"I don't know what a normal year is anymore," said Greg Albrecht, chief economist for the Legislative Fiscal Office.

After the Revenue Estimating Conference meeting, Jindal said state agencies would have to continue to "do more with less" while protecting "critical services."

"We're going to have fewer government jobs, but we'll continue to create more private sector jobs," Jindal said.

Jindal did have one bit of news likely to give legislators crafting the budget a bit of relief: there may be a way to offset budget problems caused by changes made to the administration's proposed pension overhaul. Those changes were expected to create an $80 million hole in the state general fund, but the state should be able to offset that completely by taking advantage of lower interest rates on bonds, Jindal said. Administration officials predict that even with the changes, the revisions to the retirement system will save about $30 million to $40 million in the state general fund.

Jindal also promoted a more optimistic picture of Louisiana's recovery than the officials who spoke to the Revenue Estimating Conference, noting that the state now has more jobs than at the beginning of the recession.