DALLAS — When the Louisiana Legislature convenes for its 2010 session in 11 days, lawmakers may face a budget situation that is worse than anticipated just three months ago.
Greg Albrecht, chief economist for the Legislative Fiscal Office, said Tuesday that monthly revenue from the state’s sales and income taxes are not meeting expectations. If the trend continues, he said, the revenue forecast for fiscal 2011 may need to be lowered from an estimate developed in December.
“Sales tax numbers are falling behind the estimate,” Albrecht said. “We were expecting a 14% to 15% decline for the year, but we’re seeing a 20% decline in monthly collections.”
“People are really retrenching, even those with jobs,” he added. “It is all about the recession. Spending is down by companies as well as households. Every type of consumption tax, from the sales tax to fuel tax, is down.”
The Louisiana Department of Revenue said personal income tax collections last month totaled $209 million, with $230 million in tax refunds. Officials said the state in February 2009 collected $133 million more than it paid out as refunds.
Sales tax collections in February dropped to $157 million from the $197 million collected the year before.
Sales tax revenue in fiscal 2010 is expected at $2.26 billion, rising to $2.49 billion in fiscal 2011. A revised revenue estimate in December predicted $2.6 billion of personal income tax revenue in fiscal 2010 and $2.7 billion in fiscal 2011.
Another revision of the revenue estimate may be required before the Legislature meets, but Albrecht said the fiscal picture is still murky.
“We usually do a revision in May, which is the last bite of the apple before the Legislature ends in June,” he said. “We might have to do something earlier than that because of these latest numbers. I’d like to wait at least until later in April, so we can have a full quarter’s worth of numbers to look at. February is historically a bad month for revenues, so maybe things would even out.”
Louisiana is planning to cut debt service costs by refunding up to $500 million of debt with a two-part competitive sale tentatively set for mid-April.
Freda Johnson, president of Government Finance Associates Inc., the state’s financial adviser, said the State Bond Commission will consider the issue at its meeting today.
The size of the refunding has not been determined because it changes as the interest rate for municipal bonds continues to fall, according to Johnson.
“As interest rates go down, more and more issues meet our threshold of 2% on an individual maturity basis and 3.5% on an aggregate basis,” she said. “Right now, with the decline in interest rates, we’re at a present-value savings of about 6.5%.”
Scheduled debt offerings from Louisiana include $500 million of fuel-tax bonds for highway projects in late April, and $300 million of state general obligation bonds in the fall.
Fitch Ratings and Standard & Poor’s raised their ratings on Louisiana’s GO debt to AA-minus from A-plus in October. Moody’s Investors Service retained its A1 rating on the Bayou State, but raised the outlook to positive from stable. The state has $5.74 billion of outstanding tax-supported par debt.
In December, the state’s Revenue Estimating Conference adopted a revised fiscal 2011 forecast for general fund revenue of $8.02 billion, down $194 million from the May 2009 revenue estimate.
The panel also lowered its outlook for the remainder of fiscal 2010 by $197 million, requiring Gov. Bobby Jindal to pare current spending to match anticipated revenues.
The revised forecast of $8 billion in fiscal 2011 general fund revenue formed the basis of the of $24.2 billion operating budget Jindal unveiled in mid-February, including federal funds and dedicated revenues, such as fuel taxes, that are not part of the general fund budget.
The Louisiana Legislature will consider the Republican governor’s proposed executive budget when it convenes March 29. The session is slated to end June 21.
The state’s new fiscal year will begin July 1. In 2009, the Legislature approved a $28.8 billion budget for fiscal 2010.
However, revenue collections in the months following the adoption of the revised forecast are not keeping pace with predictions. If the lag continues, an additional round of budget cuts for this fiscal year and a lowering of the estimate for next year may be required.
Timmy Teepell, Jindal’s chief of staff, said the governor has asked Commissioner of Administration Angèle Davis to develop proposals for additional budget cuts if the revenue decline requires a revision in spending before the end of fiscal 2010.
In late January, Jindal cut state agency budgets for fiscal 2010 by $248 million to match anticipated revenues. The cuts included reductions of $108 million for the Department of Health and Hospitals, $84 million of higher education spending, $14 million by the Department of Social Services, and $7.7 million in reduced spending by the executive department.
Albrecht downplayed published reports of a looming $400 million revenue shortfall in the few remaining months of fiscal 2010, which ends June 30.
“We shouldn’t panic over these revenue numbers,” the chief economist said. “People are concerned, I am concerned, but I’d like to see what happens with the income tax collections in March, April, and May.”
“I don’t know where the $400 million number comes from. I can tell you, those are not my numbers,” Albrecht added. “It must be an extrapolation that presumes the low revenues in February will continue for the rest of the year.”
Personal income tax returns being filed electronically intensifies the trend of most of the collections happening late in the tax year, according to Albrecht. As the filing deadline approaches, he said, the revenue outlook will clarify.
“Those who file early are those who get a tax refund,” he said. “Those who file later, or at the deadline, are those who owe money to the state. The bulk of those revenues, over 90%, come in during April and May.”
State taxes on oil and gas production have been the bright spot in the revenue picture, Albrecht said. The revenue panel raised its estimate of energy severance and royalty income for fiscal 2010 to $1.32 billion, but the total could be higher than the revised prediction.
“We based the estimate on a price-per-barrel of about $69, and we’re averaging $75 per barrel for the year,” Albrecht said.
Energy taxes in fiscal 2011 are expected to total $1.27 billion, based on an average annual price for oil of almost $66 per barrel. The current market price is about $80 per barrel.