Legislative inaction leaves Louisiana $1 billion in the hole

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Louisiana lawmakers will begin their annual session Monday about where they were more than two years ago: facing a $1 billion deficit and unable to fund all of the state’s priority programs.

On June 30, a 1% state sales tax increase and other fees implemented on a temporary basis will expire and, because of limits in the state’s constitution, lawmakers cannot consider revenue-raising measures during this year’s regular session.

The best opportunity to bridge the deficit ended March 5 when the Legislature adjourned a two-week special session, two days earlier than scheduled, without passing any budget-related bills.

The House, where fiscal measures must be approved first, failed to pass a package of budget-related bills that Gov. John Bel Edwards said he negotiated with House and Senate leaders.

“Simply put the failure of this special session is a result of a total lack of leadership and action in the House of Representatives,” Edwards, a Democrat, said during a press conference Monday night after the session ended. It’s “a spectacular failure of leadership in the House.”

Both houses are controlled by Republicans.

Edwards said House Speaker Taylor Barras, R-New Iberia, “abandoned his commitment to me on the very first day of session.”

Before the Feb. 19 start of the special session, Edwards said he met several times with Barras and Sen. President John Alario, R-Westwego, and the three agreed on legislation that would be considered.

Barras, describing himself as a conduit between the governor and the House, said in a PBS interview that the governor depended on bills passing in the House where the majority party is not his.

“I have played that conduit as honestly as I can and have shared with him what I think can be successful and what I can’t,” Barras said. “At the end of the day I’m not [the governor’s] floor leader, he’s got members that probably are and he’s got staff that lobbies accordingly.

“I think if the administration is hoping than I’ve become their floor leader that’s going to continue to be a point of disappointment because I have 105 members that I’m trying to traffic control and, indeed, I’m a Republican as well and was elected by that Republican majority,” he added.

Although the Senate never got to consider any budget bills, Sen. President Pro Tempore Gerald Long, R-Winnfield, said the two chambers needed to develop a partnership. “We know there’s a lot of work left to do,” he said.

Edwards has called the Legislature into special session five times since taking office in January 2016, to deal with deficits, approve the annual state budget, or to consider budget reforms.

Lawmakers have used reserves and budget cuts to cure some deficits, but have taken no actions on measures to stabilize the budget.

Last year, they rejected a series of bills proposed by Edwards, most of which were based on the Tax Reform Task Force appointed by the Legislature.

The inability of state officials to address the budget imbalance has led rating agencies to downgrade the state’s general obligation bond ratings by one notch over the past two years.

In March 2017, S&P Global Ratings lowered the state's GOs to AA-minus from AA, and maintained a negative outlook.

In early 2016, Fitch Ratings downgraded the state to AA-minus from AA, and maintained a stable outlook, while Moody's Investors Service cut its GO ratings to Aa3 from Aa2, and assigned a negative outlook.

Moody’s and S&P affirmed their ratings and negative outlooks in September, with S&P warning that another downgrade could occur.

“The negative outlook reflects our view that, within our one-year outlook horizon, the state's reliance on nonrecurring measures to close previous budget gaps, coupled with shrinking reserves, makes the state vulnerable to further fiscal instability, especially given the expiration of over $1 billion in revenue at June 30, 2018,” said S&P analyst Nora Wittstruck.

“Without meaningful, long-term structural tax changes that could carry significant implementation risk, there is a one-in-three chance we could lower the ratings,” she added.

Moody’s said its negative outlook on the state's GO rating reflected the continuing risks resulting from tax increases that roll off “amid legislative reluctance to enact significant changes to the state’s revenue structure.”

The rating agencies have yet to weigh in on the special session that ended this week, although analysts have said a positive factor for the state is that revenue collections are deposited into a bond security and redemption fund that pays GO debt service first.

Analysts have also acknowledged that the “fiscal cliff,” a term created by the governor, looms when the $1 billion in special revenue enhancements expire.

On the first day of the latest special session, Edwards asked lawmakers to address the fiscal cliff instead of waiting until the June 4 end of the regular session to avoid angst among state agencies and college-bound students who depend on state scholarships.

“If we wait until June, our economy too will take a hit,” he said. “The rating agencies that have downgraded our credit over the last several years will again consider whether we will ever have a stable budget.”

Edwards has also said the state’s deficit will be greater than $1 billion because some state revenue is used as matching funds that draw down federal money for various programs.

Without new revenue for lawmakers to approve the 2019 budget, he said Monday, “the cuts will be horrendous and they will be deep even in our most critical priorities, especially healthcare but also higher education and across the state budget.”

Edwards said he believes it won’t be possible for lawmakers to adopt a responsible budget during the regular session that funds necessary state priorities.

He plans to ask Barras and Alario to adjourn the regular session in mid-May so work can resume on the budget in a second special session through June 4, he said. Doing so will avoid additional costs since lawmakers are scheduled to be in Baton Rouge anyway.

“I'm hopeful we can do it. We need to do it,” Edwards said. “It's clear that up to now there has been a lack of a sense of urgency.”

If lawmakers can agree on funding solutions in another special session, Edwards said state agencies, students and residents depending on state services “will know what to expect” prior to the start of the July 1 fiscal year.

Whether lawmakers can cut the regular session short remains to be seen.

As of Tuesday, House members had pre-filed 690 bills and Senators had filed 455 bills.

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State budgets Deficits Bond ratings John Bel Edwards State of Louisiana Louisiana