McHugh David: Without federal intervention, prepare for conservative budget

The Louisiana Legislature does not have an enviable position this year.

The State of Louisiana continues to grapple with one of the largest unemployment pools in the country, currently sitting at 5th after crossing the 30% benchmark.

Business are everywhere from closed to open – and all spots in between – attempting to continue to make money and keep some employed amide the spread of the novel coronavirus.

Thanks to a $600 boost from the federal government with regard to unemployment benefits, shifting the weekly benefit maximum from $247 to $847 from the Louisiana Workforce Commission, many residents have actually seen a pay raise from their usual revenues.

And that’s lucky for the Louisiana economy, because it keeps those individuals spending money.

However, all good things must come to an end, they say, and on July 31 that $600 boost will disappear.

Facing 30%+ unemployment, the fact that eventually the unemployment benefits will disappear, and an economy that’s largely based on two economies that were hit hard before COVID-19 – and decimated after the hit – legislators must come together and produce a budget before June 4.

Or face a special session, which is expected at this point.

Either way, some sort of budget must be on paper before June 30 at midnight.

It almost seems like a bad joke, if it wasn’t reality, considering two harsh truths – over 50% of the state’s budget is reliant on individual income taxes and sales tax.

32.6% of Louisiana’s budget is based upon individual income tax collections, which is waived if on unemployment (federal is not).

57.5% of total tax collections come from sales taxes.

Toss in that events like Mardi Gras alone bring in $1 billion in revenue for businesses state wide – which equates to tens of millions in direct dollars for Louisiana’s budget – as well as the fact that Louisiana brings in roughly $700 million to $1 billion per year from the oil industry directly.

That’s a combination that could equal a one-two punch to send Louisiana right back into the budget Dark Ages.

The Louisiana Oil and Gas Association announced that the state’s oil fields faced at least a 50% shutdown rate and 60%+ layoff rate in the wake of the spread of the coronavirus, combined with the extreme drop in oil prices due to overseas competition.

As of now, with unemployment money funding some households, sales tax collections may remain steady.

Unfortunately, income taxes for the 2020-2021 fiscal year don’t look too swell.

Much of this depends on the phased approach the state will take to reopening the economy, and which businesses survive and which don’t.

Namely – what does that unemployment figure show on the other side of COVID-19?

Therein lies the problem, and why the legislature is going to have to swing for a base hit as opposed to the home run many were expecting.

Sometime before the end of May, a Revenue Estimating Conference will occur. In the case of the coronavirus, economists, financial advisors, legislative members, and Billy from Watson on his couch are going to pull out ever scenario and financial crystal ball to say ‘this is what’s going to happen!’

Without the federal government committing to filling revenue gaps in states, then it’s safe to say that no one really knows what the revenue will look like for Louisiana at that point.

It should be noted that, as of 2019, federal funding filles in the final gaps from taxes and makes up over 40% of Louisiana’s budget.

So relying on federal funding is nothing new for the Bayou State, but this year it would be an unprecidented amount compared to previous years.

In a year where the legislature had few bills but were expected to take big steps with regard to things like car insurance, jury trials, and infrastructure, the spread of the novel coronavirus has created an environment where they may only have the ability to try and figure out what might come next.

Wish them luck.

J. McHugh David is editor and publisher of the Livingston Parish News.