Louisiana Lawmakers Fail to Address Budget Deficit

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BRADENTON, Fla. - Minutes before midnight Thursday, Louisiana lawmakers capped their third session of the year with $300 million in fiscal 2017 budget cuts while failing to address a projected $200 million current-year deficit.

The Legislature went home after sending a $26 billion general fund budget to the governor that targets the state college scholarship program, state agencies, K-12 schools, and a low-income school voucher program for reductions to close the $300 million gap.

Gov. John Bel Edwards said he was pleased with the bulk of lawmaker's work toward closing what began as a $600 million shortfall in the 2017 spending plan, even though they did not tackle the deficit expected when this year's books close on June 30.

However, he warned that the state still faces a cash flow crunch that lawmakers knew about when they earmarked any unanticipated revenues received in fiscal 2017 for education and health care programs.

Edwards credited lawmakers for addressing the 2017 deficit without using one-time money, fund sweeps, or raiding the transportation trust fund – all measures that he said the previous administration used to drive a historic $3 billion chasm in 2016 and 2017.

"To a very large degree we were successful," Edwards said about the final budget. "It is still not a pretty document."

Until last-minute bartering occurred, lawmakers hadn't planned to use contingent funding to earmark unanticipated revenues but now that it is part of the next spending plan Edwards said it will restrict how he can deal with the 2016 gap and unforeseen shortfalls during the year.

"There is every possibility we will have to take out a loan to pay regular, ordinary bills of the state to deal with that," he said, adding that it is hurricane season and any damages must be paid upfront before federal reimbursements come in. "That's why you don't do contingent funding. That's why it's irresponsible."

In a special session earlier this year, lawmakers and Edwards approved increasing the state sales tax by 1% to raise new revenue toward shortfalls in 2016 and 2017. They also redirected $200 million from the state's Deepwater Horizon settlement to the general fund, and increased taxes on tobacco, hotel rooms, alcohol, and car rentals.

In the session that just ended, lawmakers found new revenue by hiking taxes on health maintenance organizations and rolling back tax credits.

However, some of those measures, such as sales tax hike, expire after two years and it is not clear if they will bring in the cash necessary or whether other state revenues that have been in decline will improve.

Edwards said credit rating agencies did not appreciate the fact that some new revenue initiatives will be short term – a reference to hits the state's general obligation bond ratings took earlier this year.

Moody's Investors Service downgraded the GOs to Aa3 from Aa2, and Fitch Ratings dropped its GO ratings to AA-minus from AA. Moody's maintained a negative outlook while Fitch said the outlook is stable.

S&P Global Ratings affirmed its AA ratings in April, but maintained a negative outlook.

The governor, who spoke during a press conference immediately after the legislative session, would not say if planned to sign the budget without any line item vetoes.

Louisiana began the year with a $940 million shortfall in the current budget and a $2 billion gap in 2017.

After three sessions, lawmakers believe all that's left on the table is the estimated $200 million shortfall this year caused by lower corporate income and franchise tax filings.

House Speaker Taylor Barras, R-New Iberia, said the final rollover deficit amount will not be known until the books close and state income tax payments are received from 36 parishes that suffered severe flooding this year.

A presidential disaster declaration combined with state disaster rules gave affected taxpayers additional time to file their state taxes.

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