BRADENTON, Fla. – Another eventful year lies ahead for Louisiana with a special legislative session looming to address an anticipated budget shortfall and continued recovery from last year's disastrous floods.
As Gov. John Bel Edwards begins his second year in office, he said that an anticipated mid-year revenue shortage may be "more painful than we can bear."
"I've been told to expect up to a $300 million shortfall," Edwards said.
While he said lawmakers are considering a plan to apply $119 million from the budget stabilization fund to the shortage, the remaining $181 million hole could still require a special session to more fairly distribute budget cuts that are beyond his authority to impose.
The state's economists will determine Friday how much revenues are lagging estimates used to prepare the fiscal 2017 budget.
Edwards also plans to move forward with an ambitious slate of programs this that will require legislative support, including tax reform and finding new revenues to support transportation funding.
The fact that Louisiana has already absorbed in the current year a $313 million deficit discovered after the books were closed in fiscal 2016 puts even more pressure on the state's finances and ability to fund priorities such as higher education and healthcare.
In a Feb. 6 post on YouTube, Edwards responded to criticism that the state has not advanced funds from its general fund to speed up recovery efforts from last year's historic flooding while waiting to receive $438 million in federal disaster money appropriated by Congress.
"To suggest we could have advanced recovery money is false," he said, adding that although Louisiana dealt with its largest deficit in history last year, the state still has ongoing budget challenges and cash-flow problems.
A final recovery action plan to draw down the $438 million has been submitted to the federal government, Edward said, but the state ultimately will need another $2 billion for the recovery that will be sought from the Trump administration.
After taking office Jan. 11, 2016, Edwards was faced with a $2.6 billion budget hole that required several special sessions to make cuts and pass temporary revenue-raising measures that roll off the books in 2018.
Rating agency analysts were critical of the Legislature's work, citing among other problems the temporary nature of the new revenues lawmakers approved.
As a result, Louisiana's ratings took hits.
Citing the state's unresolved structural imbalance, Fitch Ratings downgraded the state's general obligation bonds to AA-minus from AA in April.
Noting similar problems a month earlier, Moody's Investors Service cut the GOs to Aa3 from Aa2, and cut all other state bonds one notch, while maintaining a negative outlook.
S&P Global Ratings, while maintaining AA ratings to Louisiana GOs, has placed a negative outlook on Louisiana's debt since February 2015.
In September, when the state last sold $161.5 million of GOs, Fitch affirmed its AA-minus rating, saying it continued to reflect Louisiana's "persistently imbalanced financial operations," reliance on one-time stop-gap measures, and overly optimistic revenue projections requiring successive years of mid-year budget corrections.
Analysts have not weighed in on the state's financial pressures so far this year, but S&P in November wrote favorably about potentially sweeping budget and tax reform changes proposed by a governor-appointed task force.
The 13-member task force in its final report recommended 18 changes in budget and tax policies that "if adopted as a comprehensive set of reforms will help to establish a long-term, stable foundation for Louisiana's finances."
Edwards has said that his administration plans to "tackle successfully" long-term structural tax and budget reform during the regular session that starts April 10.
"We have no choice," but to make the changes, he said, "because if you look forward to July 1, 2018 about two-thirds of the revenue that we raised [in 2016] will fall off the books and so we have to implement in the long-term tax reform that produces a tax structure that is fair, that's predictable, and stable and sufficient."
The task force's suggested changes for budgeting included establishing formal multi-year spending forecasting for several departments, including Medicaid and the Department of Corrections, and examining the pension system's assumed rate of return.
"Among the state's most significant spending problems is the unfunded accrued liability created by the state pension systems," the panel said. "The UAL is a more than $20 billion debt that places a serious stress on the state budget."
The task force said the pension liability arises from historically inadequate funding of the state pension system, which is a constitutionally established benefit to current and former state employees that takes the place of Social Security for those who participate.
Another recommendation is to roll back the state's sales tax rate to 4% while broadening the collection base to tax services such as satellite television and repairs to nonresidential, commercial property.
Other proposals call for eliminating or closely regulating existing state tax exemptions, deductions, and credits that currently cost about $7.7 billion in lost annual revenue; reducing individual income tax rates and eliminating the federal income tax deduction; allowing local governments to impose a local sales tax without legislative approval; and gradually eliminating local and state taxes on business inventories.
"We believe these recommendations would put Louisiana on a more sustainable fiscal path and improve taxpayer compliance," said S&P analyst Nora Wittstruck. "Additionally, several of the other suggestions recommended by the task force would likely improve long-term fiscal planning and management of liabilities."
Meanwhile, a special session to deal with budget cuts remains up in the air with some lawmakers in the Republican-controlled Legislature saying that they plan to avoid calling one.
Edwards, a Democrat, still maintains that his administration will press his ambitious plans this year for tax reform and addressing the $13.1 billion backlog of transportation needs.
On Friday, the governor's Task Force on Transportation Infrastructure Investment released a 56-page report recommending the state raise $700 million annually for multimodal transportation, including enacting an excise tax on motor fuel and considering other measures such as special permit and vehicle registration fees, and indexing new revenues.
Edwards will submit his executive budget for fiscal 2018 on Feb. 24.
The governor is expected to reveal more about his agenda for lawmakers this year on April 10 in his State-of-the-State address at the opening of the regular legislative session.