Louisiana governments expect billions in coronavirus revenue losses

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COVID-19 and depressed oil prices will take an outsize toll on Louisiana's finances, with the state and local governments facing billions in losses, according to the state’s economist and auditor.

On Monday, the revenue estimating conference adopted a general fund forecast for fiscal 2020 and 2021 that projects more than $1 billion in lower state revenues compared to previous baseline numbers in December and January.

City workers disinfect the French Market in New Orleans in April. Business shutdowns, combined with collapsing oil prices, will hit Louisiana state and local budgets hard.

The lower forecasts are attributable to the nearly two months Louisiana's businesses have been shuttered and skyrocketing unemployment because of the coronavirus pandemic, as well as reduced demand for gas and an ongoing dispute between OPEC and Russia over oil production, which has driven prices down.

The virus hit Louisiana harder and earlier than most states.

Gov. John Bel Edwards, a Democrat, has announced that most businesses can begin reopening on Friday.

Greg Albrecht, the Legislature’s primary economist, said unemployment claims have been "off the charts," rising to 310,000 from the 14,000 to 15,000 that were seen prior to the increase in positive COVID-19 cases that prompted the governor to issue a stay-at-home order to stem the spread of the virus.

"There's no crisis we’ve had that even comes close to this,” Albrecht told conference members, who are Senate President Page Cortez, R-Lafayette; House Speaker Clay Schexnayder, R-Gonzales; Commissioner of Administration Jay Dardenne; and Stephen Barnes, an economist at the University of Louisiana at Lafayette.

Unemployment claims have risen to 14.7% of the workforce, an amount far greater than the state experienced as a result of the devastation from Hurricane Katrina in 2005, he said.

"The state revenue outlook is strongly negative, although highly uncertain as to magnitude," said Albrecht, who went on to discuss anticipated lower collections in severance taxes, sales taxes, gaming, and other categories.

For the current year, a shortfall of $123 million in revenues is anticipated, he said, describing the impact on fiscal 2021 as "all bad" for most revenue sources that support the state budget.

For the year starting July 1, he said a shortage of $867 million is currently projected, compared with earlier forecasts.

After hearing from State Treasurer John Schroder, conference members agreed to increase the shortfall for the upcoming fiscal year by another $25 million, which was anticipated to come from the state's unclaimed property revenues.

Schroder, a Republican, told the panel that there is nothing in state statutes that requires him to turn over any unclaimed money to the state general fund, even though about $40 million of it was included in the revenue estimating conference numbers for 2021.

"I am here to ask you today to remove it from the forecast," he said, adding that he would not object to including $15 million to pay debt service on special revenue bonds the state issued in 2013 and 2015 to finance transportation projects because that amount is specified in state law.

Dardenne, the governor's budget chief, said that the Legislature appropriates the state's money, and it's his belief that it also includes the unclaimed property funding.

Edwards filed a lawsuit against Schroder over his refusal last year to withhold the money from the state budget. Dardenne said a trial has been held and the state is waiting for a decision from the judge.

"We'll hopefully get a definitive ruling from the court before the budget is enacted," Dardenne said, adding that he believes the ruling will be appealed by the losing side.

The numbers approved by the estimating conference will be used by the Legislature to make adjustments in the current state budget and to build a spending plan for the upcoming year. Lawmakers just resumed their annual session after a break due to the coronavirus.

Because of the unknown breadth of the economic hit due to the pandemic, conference members also agreed to meet every two months to monitor changes in revenues.

For local governments in the Pelican State the budget outlook is just as bleak.

Parishes, municipalities, school boards, and sheriffs could collectively experience revenue losses in sales and ad valorem taxes, as well as severance taxes and mineral royalties up to $1.1 billion in fiscal 2020 and 2021, according to a report Louisiana Legislative Auditor Daryl Purpera released May 7.

"The state has experienced an economic downturn since COVID-19 mitigation measures were implemented, which will affect tax collections of local governments," the report said. "Louisiana’s local economies will likely not immediately recover to their former levels of output and tax collections after the stay-at-home order is lifted."

Purpera said his auditors examined sales tax and mineral-related revenues because they make up 23.6% of local government budgets and are more sensitive to the economic contraction caused by COVID-19 than other revenue sources.

Auditors also reviewed sales tax revenues from hotel occupancy because of the impact tourism and travel will have on some local economies, and they estimated the impact of the downturn on ad valorem taxes, which account for 20% of local government revenues.

"We estimate that local government revenues from sales taxes and ad valorem taxes and mineral-related revenues will decrease by $172.4 million to $305.5 million for fiscal year 2020, and by $232.3 million to $833.2 million for fiscal year 2021," the report said. "We project that sales tax collections will decrease by 3.8% to 7.0% in fiscal year 2020 and 4.8% to 20.5% in fiscal year 2021."

Gov. Edwards issued a statewide stay-at-home order that began March 23 to fight the spread of COVID-19. At the time, there were more than 800 confirmed cases of the disease.

On Monday, Edwards announced that the state will move to phase one of three phases, under the White House's guidance on Friday, removing stay-at-home orders for most residents, except the elderly and those with compromised immune systems.

Most non-essential businesses will be allowed to open under strict occupancy levels of 25 people at a time, and they must follow safety and social distancing guidelines.

“Because of the stay-at-home order, Louisianans were able to dramatically improve our trajectory, reduce the number of new cases, keep our health care system from being overrun and save lives," Edwards said. “Right now, the data shows improvement, and we also now have a much more robust testing and contract tracing program underway, which will allow us to better identify cases and isolate those who may have been infected."

Hard-hit New Orleans, which will borrow up to $100 million to pay for operations because of the pandemic, plans to begin the first of a four-phase opening process on Saturday. Many of the city's regulations are stricter than those being imposed by the state.

The Louisiana Department of Health said the state has seen 32,050 confirmed cases of COVID-19 and 2,281 deaths from the virus. Across the U.S. there have been 1.37 million confirmed cases and 82,391 deaths, according to the Johns Hopkins University COVID-19 tracker.

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State budgets State and local finance Coronavirus John Bel Edwards State of Louisiana Louisiana