Louisiana Official: 30% Agency Spending Cuts Loom

DALLAS - Louisiana Commissioner of Administration Angele Davis has told state agencies to prepare for a 30% decrease in discretionary spending in fiscal 2010 due to flat state revenues and rising expenses.

Davis told agency directors last week that the state could experience a shortfall of as much as $1.3 billion in fiscal 2010.

Davis said revenues for fiscal 2010 are now expected to be $377 million lower than originally predicted. The revenue shortfall is compounded by inflation and mandated increases in education and health care to produce a projected budget shortfall of $888 million, she said. Tax cuts passed by the 2008 Legislature bring the total shortfall to $1.3 billion.

The state expects general fund revenue collections of $8.8 billion in fiscal 2010, but $4.4 billion of the general fund revenues are dedicated to specific appropriations by existing state law or the Louisiana Constitution that cannot be cut.

An analysis by the Louisiana State University System of the state budget said higher education and health care programs would have to absorb 63% of the cuts because of the legal and constitutional restrictions on reducing other state programs and expenditures.

Gov. Bobby Jindal will propose his budget for fiscal 2010 when the Legislature convenes in March.

Davis said spending cuts could be implemented before the end of fiscal year 2009 on June 30, depending on the level of tax revenues over the next few months.

"So for right now, even before proceeding into the normal budget development process, what we are trying to do is be proactive, meeting with department heads to first discuss that discretionary general fund spending, and then begin to develop a strategy for what is now projected to be a shortfall in the next fiscal year," she said.

State agency directors and department heads have been asked to look for ways to curtail expenses and spending next year. Some cuts could be implemented before the end of this fiscal year, Davis said.

The estimated shortfall is not a surprise to state officials, but is slightly larger than anticipated.

In presenting Jindal's executive budget to the Legislature in March 2008, Davis said projections showed a $1.2 billion shortfall in fiscal 2010 as general fund revenues dropped from $9.2 billion in fiscal 2009. She said the shortfall would escalate steadily to $1.9 billion by fiscal 2013, with general fund revenues of $8.9 billion, as the state's economy slowed.

Louisiana has enjoyed budget surpluses for the past three years, due in large part to economic activity associated with hurricane recovery efforts and steadily increasing oil and gas prices. However, the era of surpluses may be ending.

The revenue estimate for fiscal 2010 is based on oil prices of $72 per barrel, which seemed conservative in May when the state Revenue Estimating Conference developed its predictions for future fiscal years.

The revenue conference adopted a report that predicted an average oil price of $84.23 per barrel in 2009, $72 in 2010, $68 in 2011, and $67 in 2012. The current spot market price is less than $66 per barrel. With each $1 per barrel decline in the price of oil, Louisiana's severance tax on oil brings in $12.5 million a year less.

Louisiana's budget for fiscal 2009 totals $30.1 billion, including $15 billion of state funds and $15.1 billion of federal funds. That was down from a $34.3 billion budget in fiscal 2008 that included $14.6 billion of state funds and $19.7 billion of federal funds.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER