BRADENTON, Fla. – Facing a $2.65 billion budget deficit, Louisiana may for the first time in years consider raising taxes to solve part of the funding problem.
Dealing with the new, current-year general fund shortfall of $750 million probably will mean that the state – for a second time in fiscal 2016 – taps its "rainy day" reserve.
"This is not the budget plan I want to bring in my second week in office, but these problems are bigger than our state has ever seen," Gov. John Bel Edwards, a Democrat, said Tuesday as he unveiled strategies the state plans to use in tackling the deficit.
Edwards said the projected shortfall stands at $1.9 billion for fiscal 2017, if Louisiana wants to maintain state services at this year's funding level.
To address the fiscal 2016 gap, the plan calls for tapping the rainy day fund for $128 million, pulling $200 million from the BP oil spill settlement, and cutting at least 10% from $1.6 billion in revenues dedicated to certain uses, though not constitutionally protected.
The plan for the 2016 budget is a "bridge" to deal with the short-term crisis, said the governor's Republican budget chief, Commissioner of Administration Jay Dardenne.
Lawmakers in November already closed what was then a $500 million mid-year budget gap by making budget cuts, deferring some payments, using projected fund balances, and using $28.1 million from the state's budget stabilization fund.
Analysts criticized the steps as one-time measures that didn't address years of structural imbalance. They also said the state's double-A ratings could be pressured without action to address budget underfunding.
Edwards said he plans to call a special session of the Legislature in mid-February to address the fiscal 2016 and 2017 budget problems and enact measures that would permanently address structural issues.
A slate of options will include adding 1 cent to the existing 4-cent state sales tax, which wouldn't be subject to exemptions except for groceries, prescription drugs, and residential utilities.
Raising the tobacco tax from the current $0.86 per pack of cigarettes to $1.08 per pack will also be on the table, as will renewing the telephone and cell phone state telecommunications taxes and increasing the monthly rate to a flat 5% from the current 2% interstate and 3% intrastate rates.
Edwards' plan also suggests that the state repeal the business utilities sales tax exemption, require businesses to pay all 4 cents sales tax on utilities, and index future rates to price changes in natural gas.
Other measures also target business tax credits, vendor payments for collecting certain taxes, and would institute measures to ensure that sales taxes are paid on in-state Internet sales.
Louisiana businesses decried many of the new governor's proposals.
State Treasurer John Kennedy issued a press release advising against raising taxes just a few hours before Edwards' press conference Tuesday afternoon.
"I don't envy any public official who walks into office with a $1.9 billion budget hole to fill, but they had better be careful trying to fill it by burdening our citizens with higher taxes," Kennedy said, adding that he recognized the state budget has been "mismanaged for many years."
Kennedy, a Republican, said many Louisianians are living marginally now, and raising taxes could "tank an already shaky economy."
While Louisiana hasn't raised major taxes in years to support the state budget, its fiscal state worsened dramatically this year.
Contributors to the decline included a $117.1 million deficit in fiscal 2015, corporations taking more tax credits than usual along with slumping corporate income taxes, rising Medicaid costs, and slowing sales tax collections, according to state officials.
Edwards warned Tuesday that failure to "fix" the budget crisis would mean continuing catastrophic cuts affecting hospitals, universities and community colleges, the state's scholarship program, and public schools.
New state revenue estimates are due Feb. 10, followed by release of the governor's budget Feb. 12.
The GOP controls both chambers of the Legislature. The regular session starts March 14.