A few conservative legislators like myself, those who came from the real world of business, have repeatedly warned of the folly of constantly raising taxes and then spending every penny based on the expectation that nothing would ever go wrong, that revenues would always go up. The current crisis is now demonstrating that our logic was accurate. We are now facing one active and two potential economic disasters. The active one is the COVID-19 epidemic, the potential ones are a possible reoccurrence of COVID-19 in the fall and the possibility of a natural disaster, such as hurricane.
Kirk Williamson wrote an important article questioning the state’s preparation for the potential of tropical weather that might slam into us during the ongoing COVID-19 epidemic. Of course, his theme is a rhetorical question because, as he well knows, there are no plans for such occurrences.
Mr. Williamson’s concerns were of a medical nature, but there is another danger to Louisiana lurking in the possibility of a hurricane’s impact. Bluntly put, the state has no financial resources to prepare for tropical weather and certainly none for recovery after a hurricane.
Pretty strong statement you ask. Yes, but here are the facts.
As I have written many times, a year or so ago Moody’s Analytics did an analysis, a stress test, that put Louisiana’s vulnerability to a recession at between $1.5 and $2.5 billion. That was well before COVID-19 and even then, we did not have those kinds of resources. Without a doubt today we have far less. That means that other than a limited sum in the Rainy-Day fund, we have no savings to speak of to help us through the current recession caused by the medical crisis or anything that may come later. Magnifying the concerns, this week Moody’s reported again, this time that Louisiana ranks highest of all states in the economic impact from the current epidemic.
Exacerbating our situation, we have now lost our two main economic drivers, tourism and energy. Beside the loss of jobs, the result of this is that our operating revenues have become diminished. As a result, there is an expectation of a shortfall of between $500 million and $1 billion in the 2020-21 operating budget, plus an unknown shortfall beyond that. Therefore, there is no possibility that somehow funds for recession recovery funds or hurricane recovery could be gleaned from operating funds.
No savings and declining revenues, a witch’s brew of trouble magnified exponentially should a storm take aim at us.
The governor’s only comments on our current fiscal calamity have been that there is a possibility that the federal government will step up with an infusion of cash that might save his highest in history spending spree. At this stage that is uncertain, and even if something does come through, its use to prop up our state budget would be severely restricted. As to Mr. Williamson’s point, any federal largess certainly would not include funds to be set aside for a future weather disaster or the recurrence of the epidemic.
So here we are facing June 1st, the start of hurricane season, with no resources to prepare for or to recover from a storm. Most believe that our unemployment levels will not recover quickly, or even at all, which means demands for expensive state social services will climb immeasurably, even as our state’s revenue will fall dramatically. With expenses up, revenue down the governor will undoubtedly push for higher taxes, but that would be insanity in a state whose whole economy is on the ropes. If a storm hits while our financial conditions are still decimated, bankruptcy may be the only viable alternative.
Time has proven that it is folly to try to run our state, really a $32 billion business, with no regard for ever-increasing, mandated expenses, or by ignoring the impact on revenues from a downturn. And yet with few exceptions that is what the people of Louisiana have gotten in exchange for their vote. The best metaphor for our political history is that our leadership has been driven by spending habits that are the same as opioids are to a drug addict. No concern for the damage done to the body politic, just spend like there is no tomorrow.
Yes, hurricane season is upon us, and we still have not even taken the very first step to overcome the immediate financial crisis, let alone prepare for a storm. In effect we are operating only on hope, hope that no hurricane comes our way. Worse of all, but not unexpected, we have not heard one word about any reforms to place the state on a better footing going forward.
Only Mr. Williamson is asking pertinent questions. And the responding sounds of silence from the Administration are deafening!