BRADENTON, Fla. – Louisiana's incoming budget chief, Jay Dardenne, warned legislators before taking office that the state's fiscal problems are worse than they thought.
Lawmakers in November closed what they were told by Gov. Bobby Jindal's administration was a $500 million current-year budget gap.
What a difference a month makes, said Dardenne, who takes over as Commissioner of Administration on Monday.
Louisiana faces a new budget shortfall for the current year that could top $750 million, as well as an estimated $1.9 billion funding gap in fiscal 2017, Dardenne announced Dec. 30.
The combined $2.65 billion deficit for this year and next year was identified after Dardenne said he examined state revenues for November and consulted with economists and budget experts.
The budget shortfall does not include any of the $12.7 billion in backlogged transportation projects identified by Gov.-elect John Bel Edwards' Transition Committee on Transportation this week.
Edwards, a Democrat who takes office on Monday, and Dardenne have vowed to address the state's structural budget issues. Edwards appointed Dardenne, a Republican who is currently lieutenant governor, as his budget chief,
Analysts have said the growing imbalance is pressuring Louisiana's double-A general obligation credit ratings.
The state's structural problems have been created by "eight years of deficits and devastating cuts," Edwards said in a pre-inaugural interview with the News Star.
The new governor has said that in the weeks following his inauguration he will roll out a number of measures that state legislators can consider as they tackle persistent budget problems.
Edwards will give his first State of the State address on Feb. 12, after which he plans to call a special legislative session to work with lawmakers in developing a consensus on state spending.
The Legislature's annual session, during which the official budget will be developed, begins March 14 and runs through June 6.
Edwards has said that everything will be on the table, including the reduction of tax credits, additional budget cuts, and raising taxes, though he has made no formal announcement about whether he supports raising taxes.
Outgoing Gov. Bobby Jindal disagreed that the state's budget is in such dire straits.
"The state budget is balanced, like it has been every year for eight years in a row," Jindal said in a statement. "We made a choice not to raise taxes for eight years and instead to cut the size of government in order to balance the budget."
Jindal said raising taxes would cost jobs and hurt small businesses.
"Raising taxes would be an easy way for government to be flush with money again, but we have always believed and continue to believe that raising taxes is the wrong approach for our economy," he added.
In late November, lawmakers approved Jindal's plan to deal with a $500 million mid-year deficit.
In addition to budget cuts, fund sweeps, and using rainy day reserves, the state implemented new cash-flow procedures and fraud prevention measures in order to delay certain payments, and allocated projected excess fund balances to close the gap.
Those measures exacerbated credit pressures facing the state, Moody's Investors Service said in mid-December.
Moody's, which rates the state's GO bonds Aa2 with a negative outlook, was critical of actions to balance the budget because they relied almost entirely on the use of fund sweeps, payment delays, and other nonrecurring actions.
"The balancing plan does not address years of unresolved structural budget deficits that have collided with a weakening state economy and a sharp drop in revenues from oil and gas extraction taxes," Moody's analysts said. "State reserves and liquidity remain adequate for now, but they will continue to trend toward narrow levels unless timely action is taken to achieve credible structural balance going forward."
While maintaining its AA rating and stable outlook, Fitch Ratings warned Dec. 3 that the mid-year actions are stopgaps that do not address "persistent" budget challenges.
Any additional actions that result in new fiscal stress or further reductions in fiscal flexibility could lead to negative pressure on the rating, Fitch analysts said.
Standard & Poor's also has a negative outlook on its AA rating, and advised state officials in August that permanent structural solutions would be key to maintaining the state's credit stability this year.
Dardenne, an attorney and former state senator who served eight years on the Senate Finance Committee, said in the coming months the state must deal with a situation of its own making as well as external forces beyond its control.
"Escalating use of one-time money, excessive fund sweeps, tax exemptions and credits that are more generous than we can afford," he said.
Since the Legislature last acted on the budget to close what was then a $500 million mid-year gap, Dardenne said final revenue figures for November show that the state's income has continued to plummet because of lower-than-anticipated oil prices, "a dramatic slump in corporate income tax collections," and a slowing in the collection of sales taxes.
In addition to lower collections, contributors to an estimated $750 million new shortfall in the current year budget include a $250 million underestimation of Medicaid funding due to an increase in the number of users and legal settlements that have not materialized.
Another $43 million in fiscal 2016 is needed because the budget underfunded public school districts, the state's college scholarship program, and housing for state prisoners.
Dardenne also said that the 2016 budget was passed with orders that the administration reduce budget expenses by cutting state contracts by $10 million, cutting $4 million in jobs, and trimming an additional $5 million elsewhere. Those cuts have not been made.
The bad news doesn't stop there, he said, adding that state economists have lowered mineral tax collections for fiscal 2017 by $600 million.
In order to develop a spending plan that will fund government operations with less revenue and "without using undesirable measures like excessive one-time money or fund sweeps," Dardenne said the total shortfall for fiscal 2017 is estimated at $1.9 billion.
Dardenne said in a letter to lawmakers that the new administration is committed to "ending the era of gimmicks and trickery."
"We are committed to stabilizing the budget and structurally changing the way Louisiana handles its budgetary obligations to our citizens," Dardenne said. "We will do this by telling the truth and presenting the unvarnished facts."
