DALLAS - Louisiana must cut its current state budget by $341 million this year while looking to a $2 billion shortfall in fiscal 2010, according gloomy projections released Monday by the state Revenue Estimating Conference.
The four-member board reduced its estimate for fiscal 2010 general fund revenues by some $750 million, worsening an expected gap of $1.26 billion. The reduction in fiscal 2009 revenues is the first official prediction of a shortfall this year, and will require the state to cut budgeted expenditures in the middle of a fiscal year for the first time since 2002.
Greg Albrecht, chief economist for the Legislative Fiscal Office, said most of the shortfall is a result of oil and gas prices that have fallen below even the most conservative estimates used to predict revenue generated by state severance and production taxes.
"Oil prices have fallen dramatically, well below what we thought would be safe numbers," Albrecht said. "We thought we were using pretty safe numbers until the price collapsed."
The fiscal office used an oil price of $84.23 per barrel in estimating revenue for fiscal 2009 and $72.17 per barrel in fiscal 2010, but the latest spot market price is below $44 per barrel.
Mineral severance and production taxes make up about 17% of annual state revenue, with sales taxes contributing 24% and personal income taxes generating 26% of total collections.
Albrecht said 60% of the shortfall can be attributed to weak energy prices, but sales, income, and vehicle taxes are also weak.
"We're seeing the result of the national economic slowdown," he said. "All these taxes are very sensitive to the economy. We're expecting corporate income taxes to weaken too, and that is somewhat connected to the price of energy."
New vehicle sales are down 24% from fiscal 2008, he said, which saw a 19% decline in vehicle sales from fiscal 2007.
The revenue report said some $380 million of the 2010 gap is a result of tax cuts approved by the 2008 Legislature, including a $360 million cut in the personal income tax rate.
Louisiana's general obligation debt is rated A-plus by Standard & Poor's and Fitch Ratings, and A1 by Moody's Investors Service.
The state posted surpluses of $827 million in fiscal 2006, $1.1 billion in fiscal 2007, and $865 million in fiscal 2008. The surplus from fiscal 2008 has not been appropriated by the Legislature, but the state constitution limits its use to debt service relief, coastal protection efforts, and some road projects.
Gov. Bobby Jindal called the lower revenue estimates "certainly serious but not surprising." He ruled out a tax increase or using the state's $776 million budget stabilization to make up the shortfall.
"Just like in families and small businesses, state government has to live within its means," the governor said. "That means we will have to reduce government spending to a level we can afford. Raising taxes is not an option, and would be the worst thing we could do in an economic downturn.
"We are not considering use of the rainy-day fund to address the deficit this year, as it will not help us with the deficit next year," he said. "We are looking to reduce expenditures in every area of government."
The Joint Legislative Committee on the Budget is expected to certify the revenue report on Friday, which will give the governor 30 days to propose budget cuts for fiscal 2009.
Commissioner of Administration Angèle Davis, the governor's chief financial officer, said the administration would propose cuts for fiscal 2009 well before the deadline.
Alan Levine, secretary of the state Health and Hospitals Department, said he may have to cut his agency's fiscal 2009 general fund budget by between $125 million and $175 million, most of which will come from the state's $7 billion Medicaid program.
The cuts could mean a $500 million reduction in the total program as each state Medicaid dollar is matched by $3 from the federal government.
Louisiana state colleges and universities will see their funds trimmed by $109 million in fiscal 2009, almost 8% of the money they get annually from the state.