SADOW: There Will Be Some Wuhan Virus Budget Cuts At The Capitol

So, what are Louisianan’s options as the economic impact of the Wuhan coronavirus continues to linger?

It all starts with the Revenue Estimating Conference, which last year made forecasts for fiscal year 2021 that the Democrat Gov. John Bel Edwards Administration wanted to bump up two months ago. Leery (presciently) of the state’s economic health, Republican leaders of the Legislature didn’t want to commit to a $100 million or so boost and no change occurred.

Chances are, with the price of oil more than halved in just weeks, taxes on sales, income, and gambling likely to feel ongoing effects from what appears to be a month-long economic moratorium, and the decline in investments that will force the state to commit more current revenues to shore up its unfunded accrued liabilities, that supposed surplus more than has disappeared. This means cuts for FY 2021, unless bringing into play the Budget Stabilization Fund.

The rainy-day fund held $405 million at the end of FY 2019, meaning that as much as $135 million could offset a decline in revenues year-over-year. Added to the presumed $100 million or so, and that might do the trick.

But there is a catch. The total usage can’t exceed a third for the current and ensuing fiscal year. This means that if FY 2020 comes up short, any use of it in the next three months takes away from what could be used in FY 2021.

The REC wanted to declare a surplus of $170 million for this year, and recently Republican Treasurer John Schroder opined he thought the state could make it through year’s end without any changes. Then again, assuming a five percent drop in just sales and gaming taxes (except the lottery, which might see an increase through online sales) over the year’s prediction comes to a loss of $218 million. And, the state delayed income tax payments due this fiscal year until Jul. 15, the next fiscal year, to give folks a chance to recover from what the Wuhan virus does to them. If that pushes forward even five percent of total income taxes due, that’s another roughly $430 million.

In short, Schroder may be optimistic. The BSF draw may have to happen this year and taxes due could offset into next year – which essentially guarantees BSF use this year, since a condition of that is that next year’s revenues be less than this year’s, but pushing forward income tax receipts might make that impossible, yet with an updated REC forecast for this year that would put this year’s revenues below last year’s, that would qualify use for this year.

Regardless of the creative bookkeeping involved, the magnitude of the numbers suggests the BSF won’t by itself save the day. That leaves the federal government as the last resort to forgoing cuts – or Edwards demanding tax increases – next year.

Already, it has pledged over $1 billion to the states, but that will go to Wuhan virus-fighting expenses. Yet another tranche appears on the horizon, with debate currently in Congress that could print $2 trillion to pay for a variety of measures. While the situation remains in flux as of this writing, altogether states could receive $150 billion in direct aid.

Roughly measuring this out in proportion to population, Louisiana could receive $210 million. Includes the previous proposed surplus numbers as genuine reflections of reality, these with the BSF followed by the federal rescue package probably could close the gap for both fiscal years, tenuously estimated.

Policy-makers should take no chances. Edwards needs to rip up his requests for increased spending and, at the very best, legislators should pass a budget that overall stands still. More cautiously, preparation for cuts should begin now.

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