BRADENTON, Fla. – Louisiana’s GOP-led Legislature is poised to impose severe cuts to balance the state budget instead of enacting tax reform to increase and stabilize revenue.

On Monday, the House Appropriations Committee voted 17-5 to approve a $28 billion budget bill that imposes $235 million more in cuts than were proposed by Gov. John Bel Edwards.

Edwards, a Democrat, had hoped to push through tax reform measures to stabilize the state budget and raise new revenue to pay for state services.

Most of the GOP budget reductions target healthcare, child services programs, schools and prisons, with some of cuts imposed to fully fund a popular college scholarship program.

Louisiana’s budget chief Jay Dardenne said a House committee approved severe budget cuts without hearing from agency heads.
Louisiana’s budget chief Jay Dardenne said a House committee approved severe budget cuts without hearing from agency heads.

The full House is expected to vote on the funding proposal Thursday, before sending it to the Senate.

If approved by Edwards, it would take effect July 1.

Edwards has not commented on the House committee’s plan for fiscal 2018, although his budget chief held a press conference Tuesday with several state agency heads to address the impacts.

“The lack of compassion in this budget is appalling,” said Marketa Garner Walters, secretary of the Department of Children and Family Services, an agency that oversees some 8,000 foster children and food stamp beneficiaries.

Walters, whose budget would decrease by nearly $20 million under the GOP plan, said the reduction proposed for her department showed a lack of understanding by lawmakers about how the cuts would affect Louisiana families.

Dr. Rebekah Gee, secretary of the Louisiana Department of Health, said there was no “fluff” left in her budget even though the GOP-led budget proposal cuts her agency by $235 million.

Agency heads said millions of federal dollars would be left on the table if the budget cuts are approved, because they cannot meet matching funding requirements.

“All these reductions were made with absolutely no testimony from the departments,” said Commissioner of Administration Jay Dardenne, who called the budget bill a “non-starter.”

In some areas, the House Appropriations Committee’s budget bill imposes restrictions by not allowing agency heads to manage the dollars appropriated to them – a step that Dardenne said could “grind the wheels of government to a halt.”

Dardenne also questioned an item in the Republican budget proposal that would dip into the $1.6 billion in federal funds the state has received to assist homeowners whose dwellings were damaged during last year’s historic floods.

The proposal would shift $190 million of the federal funds to the Comite River Diversion Canal, a 12-mile-long flood-control project designed to protect Livingston Parish from floods.

Even if the federal government approved the use of the money, Dardenne said it is a capital expenditure that does not belong in the general fund budget.

The governor had sought a total of $29.74 billion in his executive budget.

For the general fund, he said $9.91 billion would be necessary to maintain current service levels, although the state would be short $440.5 million to fund it.

Edwards proposed a number of cuts, including $184 million to the Department of Health and a 2% reduction in all other departments to balance his budget plan.

The GOP House Appropriations Committee went further, proposing to spend only 97.5% of what the state projects it will receive in revenues in the next fiscal year, a plan that would save about $237 million if revenue estimates are realized.

Committee Chairman Rep. Cameron Henry, R-Metairie, said the move was designed to help Louisiana avoid another mid-year budget cut like those the state has encountered since 2009.

Louisiana began this year facing a $304 million gap in the current budget that had to be closed in a special 10-day session.

It ended with agreement on new budget cuts and dipping into reserves for $99 million to blunt the impact of cuts to state agencies.

In February, Dardenne told the Joint Legislative Committee on the Budget that the governor’s spending plan for 2018 did not account for inflation or provide full funding for the state’s popular college scholarship program, and it did not increase funds for roads, bridges, and infrastructure needs or provide funding for deferred maintenance.

The Department of Transportation and Development has said it needs $13.1 billion to maintain existing roads and bridges.

A bill has been introduced proposing to increase the state’s gas tax by 17 cents a gallon, from the present 38.4-cents-per-gallon, although it has received opposition.

In addition to a transportation backlog, Louisiana’s state universities, colleges and technical schools have nearly $700 million in deferred maintenance needs, according to the governor’s office.

Last week the House Ways and Means Committee killed the centerpiece of the governor’s tax reform package – a bill proposing a gross receipts tax on businesses that was expected to bring in more than $400 million.

“The truth of the matter is the fate of that bill was decided a long time before we unveiled it, and that’s pretty sad because it is part, it is not the whole plan that we have, but it’s part of a comprehensive plan to address the cliff that hits us July 1 of next year,” Edwards said.

In addition to the gross receipts tax, Edwards has proposed a series of tax code rewrites that he said would help to overcome the loss of $1.3 million in temporary revenues that roll off the books in 2018, and provide the state with new funding for critical programs that have been cut in recent years.

At this point in the session, the Legislature’s appetite for increasing revenues remains unclear given that the House Appropriations Committee’s budget proposal is based on reductions.

Louisiana has been plagued by declining revenues amid a state recession and growing unemployment because of volatile oil prices.

The state saw an uptick in revenues in April and May that will allow for prepayment of $370 million of revenue anticipation notes that were issued last fall to provide budgetary cash flow.

The Treasury will prepay the RANs on May 1 and June 1, saving the state $330,000 in interest.

Louisiana’s multi-year budget cuts, one-time stop-gap measures, unwillingness to raise revenues, and persistent structural imbalance led to three rating downgrades in the last year.

S&P Global Ratings lowered the state's GO rating to AA-minus from AA in March, and maintained a negative outlook.

Last year, Fitch Ratings downgraded the state to AA-minus from AA, and maintained a stable outlook, while Moody's Investors Service cut its GO ratings to Aa3 from Aa2, and assigned a negative outlook.

In March, Moody’s said its negative outlook reflects continuing risks regarding a “fiscal cliff” when temporary revenue measures roll off the books next year, as well as uncertain revenue forecasts, and legislative reluctance to enact significant changes to the state’s revenue structure.

The legislative session runs through June 8.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.