BRADENTON, Fla. – Louisiana lawmakers returned to the drawing board for the third time this year in an effort to close a budget deficit without imposing severe cuts to critical state services.
Legislators began a second extraordinary special session Monday night, about 30 minutes after ending their regular session, during which they claimed to close a $600 million funding gap to pass a balanced budget for fiscal 2017.
The $26 billion total state budget was signed by the president of the senate on Wednesday, and must be sent to the governor to be approved or vetoed, his office said.
"We still have a real mess on our hands," Gov. John Bel Edwards said during a joint session on Tuesday. "If we can all agree on one thing, it's that we don't like that budget."
To reach balance, the adopted spending plan makes $600 million in cuts to services that state officials agree they don't want to lose.
As the budget stands, it cuts $174 million from health care services that could also hit contracts the state has signed with private vendors.
It also provides $155 million less for the state's popular college scholarship program and trims $75 million from the higher education budget, and $75 million from K-12 schools.
"Clearly the budget is not what we want to implement come July 1," Edwards said.
The $600 million represents the amount necessary for the state to offer the same level of services in the next fiscal year that it has provided in fiscal 2016, he said.
Louisiana has made progress on its historic fiscal crisis since the beginning of the year.
However, disagreement remains over how to bridge the remaining gap in revenues driven primarily by declining energy prices and sales tax collections.
Since January, lawmakers have eliminated a $940 million deficit in the current budget by enacting a series of fee increases, raising the state sales tax by one cent over the next two fiscal years, and eliminating some corporate credits.
Those steps also helped fund some of $2 billion needed to support the 2017 budget, but the state remains $600 million short.
Louisiana's fiscal problems have worsened the last few years amid declining oil and gas severance taxes and royalties, which support about 16% of the state's general fund.
Collections from sales taxes and other fees also slowed as unemployment worsened.
Employment fell by an average of 0.725% each month between August 2015 and March 16, dampening aggregate incomes and tax receipts, according to the May 12
No taxes or fees were increased under the "no tax" platform adopted by Edwards' predecessor in the governor's office, Bobby Jindal.
Jindal's administration used fund sweeps, nonrecurring funds, budget cuts, reserves, and other measures to close deficits, including bond refinancings and pushing payments due in one fiscal year into the next year.
Louisiana had deficits that averaged $1.2 billion annually over the last five years, according to the state's Legislative Auditor.
A similar scene is playing out in other states where declining revenues and reluctance to increase taxes or other revenue-raising measures are impacting efforts to complete 2017 budgets.
Illinois is in its second fiscal year without a budget because of a stalemate between Republican Gov. Bruce Rauner, fellow GOP lawmakers, and the legislature's Democratic majority over tax hikes and policy reform proposals. Pension liabilities are complicating the crisis.
In Massachusetts, a newly estimated tax revenue shortfall of $311 million has become a thorny issue as lawmakers begin budget negotiations.
Michigan is also tackling a gap of $333 million triggered by a downward revision of funding.
Alaska has a plan to draw $3.2 billion from reserves to counter the effects of severely diminished oil royalty revenue.
In coal-producing West Virginia where revenues have sharply declined as a result of reduced energy demand and statewide layoffs, lawmakers recently completed a special session to pass a $4 billion general fund budget.
Gov. Earl Ray Tomblin has promised to veto the spending plan because it is cobbled together with reserves, fund sweeps, spending cuts, and one-time sources of money to plug a $270 million deficit – promising to worsen the state's budget imbalance.
In April, S&P Global Ratings dropped West Virginia's general obligation bond ratings to AA-minus from AA citing structural changes to the state's economy that will make recovery difficult.
Louisiana has also seen its ratings downgraded as its budget imbalance widened.
Earlier this year, Fitch Ratings lowered the state's debt to AA-minus from AA with a stable outlook, and Moody's Investors Service lowered its general obligation ratings to Aa3 from Aa2 while maintaining a negative outlook.
Standard & Poor's continues to assign AA ratings to the GOs, with a negative outlook.
"Credit rating agencies are watching us," Edwards said Tuesday, referring to the potential for further downgrades. "Credit agencies have seen through the illusions of the past."
Edwards reminded lawmakers that the route they chose to provide major new funding for the 2016 and 2017 budgets was a one-cent increase in the state sales tax – a measure that expires in two years and makes Louisiana's deficit recovery uncertain.
While he faulted the 2017 budget for the cuts lawmakers planned to impose, he said it is "one of the most honest, disciplined budgets we've seen in a very long time."
The budget relies very little on one-time funds for recurring expenses, and it does not sweep agency budgets to support the general fund, Edwards said.
He also complemented lawmakers for protecting the transportation trust fund by ensuring that gas tax revenues continue to be used to support infrastructure needs such as roads, bridges, and ports.
Lawmakers got to work Tuesday on a package of proposals submitted by Edwards, some of which would raise revenues by removing tax credits, itemized deductions, or refunds, and others that begin to implement tax reforms.
In the House, where bills affecting taxes are considered first, some members objected to many of the changes suggested by Edwards and delayed bills on the first day of the special session.
In addition to reconsidering the 2017 budget, legislators will also resume work on a capital outlay bill, which failed to pass during the regular session.
The capital outlay bill authorizes funding for local and state construction projects that will be financed with state general obligation bonds. Edwards has proposed a new priority system for authorizing projects.
Lawmakers will also be asked to pass clean-up legislation to revise bills passed during the first special session that ran from Feb. 14 through March 9.
During that session, for example, the two-year, one-cent sales tax increase applied to everything and Edwards said that was unintentional.
"The penny sales tax cannot and should not have ended up on school lunches, Girl Scout cookies, or many other items," he said.
In a final note about the state's fiscal condition Tuesday, the governor warned legislators that the state expects to encounter cash flow problems because past budget practices of sweeping funds have "drained virtually every dollar."
"Our fiscal advisors are now telling us to brace for a cash flow problem, even if we raise the dollars necessary to appropriately fund our critical priorities," he said.
In 2010, Louisiana had $4.8 billion at the end of the fiscal year to cover $285 million in expenses, according to Edwards, who added that in 2016 the state expects to have only $2.5 billion available to cover $1.7 billion in expenses.
"Because most of our state's revenue comes in the second part of the year, yet our expenses are spread out evenly throughout the year, our ability to borrow from other funds within state government, known as interfund borrowing, is severely limited," Edwards said.
