Louisiana governor signs fiscal 2019 budget with potential $500 million shortfall

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Louisiana Gov. John Bel Edwards signed the budget for the upcoming fiscal year and at the same time called the third legislative special session of 2018 because he said the spending plan is short of what’s needed to fully fund state programs.

Edwards on Friday approved House Bill 1, which authorizes a total of $34 billion in expenditures for fiscal 2019 including federal funds, although he said more than $500 million in spending could still be cut.

The adopted budget contains contingency language designating programs where spending must be reduced if lawmakers fail to reach an agreement on revenue-raising measures.

“While this budget is not perfect by any means, it clearly lays out the choice the legislature has leading up to the [next] special session,” Edwards said. “We have one more opportunity to get this right for the people of Louisiana.”

Edwards called on the Republican-led Legislature to consider a number of actions in the session, beginning June 18 and running through June 27, ending three days before the new budget year starts.

Lawmakers will be asked to reconsider decisions on the state’s sales and use tax, including exemptions.

A temporary 1% sales tax increase enacted two years ago is slated to expire June 30, but Edwards wants 0.5% to remain on the books to fund an expected $500 million gap.

That plan died in the last special session, from May 22 to June 4, after the House voted against keeping any part of the 1% sales tax.

Without new revenue, the budget contains language that requires severe cuts to higher education, corrections, sheriff’s and district attorneys, children and family services, and the state’s popular college scholarship program.

Edwards, a Democrat, has said under his plan, changes in the federal tax code combined with a reduction of the state sales tax to 4.5% from 5% will reduce Louisianians’ overall tax burden by more than $500 million.

A group of House Republicans urged the governor in a letter June 7 that they posted on Facebook to include in the special session call “structural budgetary reform and cost savings measures in lieu of taxes alone.”

Several bills were suggested, but Edwards did not include them.

Louisiana’s continuing disagreement over spending could lead to further downgrades of its general obligation bond ratings.

In March, S&P Global Ratings said that political risk had become a credit weakness for the state.

S&P rates the state’s general obligation bonds AA-minus with a negative outlook, but had warned in a September 2017 rating report that “without meaningful, long-term structural tax changes” there was a one-in-three chance the state’s ratings could be downgraded.

Fitch Ratings assigns an AA-minus and stable outlook to Louisiana’s GOs, while Moody's Investors Service assigns its Aa3 rating and a negative outlook.

On June 6, Edwards signed the capital outlay bill after vetoing 40 sections of the legislation that would have been funded using state general obligation bonds.

The cuts, which removed nearly $40 million of mostly local road projects from the bill, were decried by Republicans who contended their projects were targeted because they opposed Edwards’ sales tax plan.

“Our fiscal challenges are holding us back from the strategic investments that we need to be making in critical infrastructure projects around the state,” Edwards said, adding that his line-item vetoes result in a more focused capital program that leverages available funds where they can be used for maximum affect.

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State budgets State tax revenues General obligation bonds John Bel Edwards State of Louisiana Louisiana Bond Commission Louisiana