DALLAS - Louisiana Gov. Bobby Jindal on Thursday froze state hiring for the second time in less than a year to cut expenses as the state's economy shows signs of weakness after several years of multimillion-dollar surpluses.

Jindal said he issued the executive order to help state government deal with the recovery costs of the two recent hurricanes, falling oil prices, declines in state revenue, and a projected $1.26 billion shortfall for fiscal 2010 in the midst of national economic uncertainty.

"This hiring freeze will save money to help us deal with hurricane recovery costs this year and help us be better prepared to control the size and expense of government as we plan next year's budget," Jindal said. "This is only one part of what will need to be a very broad approach aimed at cutting costs and reducing state spending, as we face a $1.3 billion budget shortfall."

State budget director Ray Stockstill told the Joint Legislative Committee on the Budget that the freeze will save an estimated $25 million of general fund expenses in fiscal 2009, which ends June 30. He said the freeze affects an estimated 3,000 state positions that are currently vacant.

The governor ordered the hiring freeze for 29 departments, agencies, and budget units in the executive branch. The order exempted jobs related to direct patient care and those critical to public safety. Agency heads can petition the Division of Administration for exceptions, Stockstill said.

State colleges and universities are encouraged to institute the freeze, but Jindal's order allows system regents to decide which positions are exempt from the hiring ban.

Commissioner of Administration Angèle Davis, the governor's chief financial officer, told lawmakers on the budget committee all signs point to a slowdown in the state's economy and continued declines in tax revenues.

"We are not seeing any indications that point to a recovery from declining revenues right now," she said. "We see nothing to mitigate the shortfall in the state's operating budget. We are not going to be insulated from what is happening to the national economy."

Davis said the state is facing a "moment of truth" as the Jindal administration prepares a budget for fiscal 2010 to be presented to the Legislature in March.

"I can't sugar-coat it," she said. "It is going to be very challenging to us to develop our budget, and the revenue projections for future years are dire."

Jim Richardson, an economist at Louisiana State University, said the current state revenue projections were prepared in May, with a revision set for December.

"The world's a very different place than it was in May," he said. "What frightens me the most is the decline in the corporate income tax, which is closely tied to energy prices."

Richardson said state corporate income tax revenues have dropped 31% in fiscal 2009 from last year.

Greg Albrecht, chief economist for the Legislative Fiscal Office, said the state had figured on an average oil price of $84 a barrel in fiscal 2009, but the current price is just above $50 per barrel. The revenue project estimated natural gas prices at $8.72 per thousand cubic feet, but current spot market prices are about $6.50.

Each $1 drop in the price of oil below the forecast costs the state $12 million a year in severance taxes and royalties, Albrecht said, with a $1 drop in the price of natural gas cutting general fund revenues by $60 million a year.

Jindal ordered a similar freeze on Jan. 14, the day he took office, that ran through the end of the fiscal year on June 30. The six-month freeze saved $39 million from the general fund and resulted in cutting 1,000 jobs, but the state has added 1,400 full-time equivalent jobs since the first freeze ended.

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.