Louisiana session fails to break budget impasse with governor

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After vetoing the first fiscal 2019 budget, Louisiana Gov. John Bel Edwards could do it again after lawmakers approved a second spending plan that imposes severe cuts on most state agencies and higher education.

The operating budget approved just before a special session ended at midnight Monday will require cutting more than $500 million because the Republican-led Legislature did not agree to extend a portion of a temporary 1% state sales tax slated to expire on June 30.

“It is the height of irresponsibility,” Edwards said after lawmakers adjourned. “This is not going to be the budget that carries us into the next fiscal year. It is unworthy of the people of Louisiana.”

Although he called cuts to state agencies catastrophic, Edwards wouldn’t immediately say whether he’ll veto the plan. He wants to study it further to review appropriations and language that requires a pro-rata distribution of any new revenue that might be raised for the fiscal year that begins July 1, he said.

Edwards, a Democrat, said he will call another special session in another attempt to raise additional revenue because he believes the House was not far apart on a deal that he could have accepted, even though it still would have required $200 million in reductions.

As the session neared the end, the lower chamber considered House Bill 12 that would have left 0.5% of the 1% temporary state sales tax in place, to raise $500 million of revenue.

HB 12 failed on a vote of 63-41, six votes shy of the required supermajority approval.

Edwards said he considered that a signal of bipartisan support that could be overcome in the third special session of this year.

The budget that was adopted funds health care programs, but imposes nearly across-the-board cuts of about 24%.

Cuts will apply to certain spending, such as K-12 and the state’s popular college scholarship program, but those programs also benefit from a pro-rata distribution of any new money lawmakers approve.

Edwards said with just a “handful of representatives to convince” that additional revenue is necessary, he will call lawmakers back to Baton Rouge for a “short, concentrated special session” that will end before July 1.

Louisiana’s ongoing budget imbalance and legislative discord over spending led S&P Global Ratings in March to say that political risk had become a credit weakness for the state.

Last year, S&P downgraded the state’s general obligation bond rating to AA-minus from AA, and maintained a negative outlook.

Similar issues led Moody's Investors Service to downgrade its GO rating to Aa3 from Aa2 in February 2016. It also maintained a negative outlook. Fitch Ratings assigns an AA-minus rating and stable outlook to the GOs.

Analysts view Louisiana’s constitution as a favorable credit factor for bondholders, because it requires all incoming revenue collections be deposited into the Bond Security and Redemption Fund to pay debt service before any other bills.

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State budgets State tax revenues Deficits John Bel Edwards State of Louisiana Louisiana