The state of Louisiana is facing a budgetary shortfall, and state legislators must make tough decisions to tackle the issue. According to recent comments by Louisiana Commissioner Jay Dardenne, the state’s finances may fall short of its 2018 budget by at least $1.2 billion dollars.
Although Louisiana’s financial crisis is getting a great deal of attention this year, the state’s current financial situation is not surprising. During the past 10 years, top Louisiana officials have been ‘robbing Peter to pay Paul’ and applying temporary measures to mask the extent of the problem. Now it seems as if Louisiana’s economy is facing problems cannot be fixed by short-term solutions.
What’s Causing Louisiana’s Financial Woes?
While the majority of the United States has recovered from the Great Recession of 2008, Louisiana’s economic growth has not been so fortunate. Due to record unemployment rates and vanishing industries, personal and business income for Louisiana residents and businesses have sharply declined.
As a result, Louisiana’s economy has experienced a significant decrease in revenue from sales, income and business taxes. Quite frankly, the state is struggling because many residents find themselves facing financial challenges through no fault of their own.
Another reason for Louisiana’s struggling economy is the way in which the problem has been handled by state’s previous administrations. For years, the state’s financial problems were temporarily alleviated with temporary tax levies, short-term revenue solutions and the reallocation of funds from unrelated programs.
Borrowing Money May Be One of Louisiana’s Solutions
The primary goal of Louisiana’s legislator’s is to have enough funds to pay the state’s obligations such as construction projects, employee payroll and program expenses. If the cash flow is not enough to meet the expenses, the state may be forced to borrow up to $500 million dollars in a short-term bank loan this year.
The course of action was approved by the Louisiana State Bond Commission in a unanimous vote. Although borrowing money promises cushion the effects a financial shortfall would have on state residents, lawmakers are hopeful that they will be able to avoid this action. They do not want to get into the habit of borrowing money each year to make it through financial hardships.
To strengthen the previous year’s budget, Louisiana borrowed approximately $370 million dollars in short-term cash. This was the first time the state has resorted to such measures.
A budgetary shortfall not only affects residents, but it can tarnish the state’s reputation with vendors if the state cannot pay its expenses. A few of the major expenses that concern Louisiana lawmakers include:
- Roadwork
- Building Repairs for College
- State Economic Development Initiatives
Bond Sales and Budget Gaps
In addition to the short-term loan option, Louisiana officials are preparing for a state bond sale in September. The sale of state bonds is expected to bring in an additional $340 million dollars in revenue for Louisiana.
When Louisiana offers its bonds for sale, investors pay for the bonds with upfront cash. In turn, investors will be repaid their upfront cash and interest over a period of a few years.
Bonds are ideal ways for Louisiana lawmakers to generate extra revenue. However, there is only a certain portion of the state’s revenue that can be generated in this manner. Bond sale revenue cannot exceed the state’s projected income.
The proceeds from the bond sale will be used to pay for the state’s much-needed construction projects. Without this measure, the state could face tough financial times.
What’s Next for Louisiana’s Finances?
In 2018, Louisiana will lose approximately $1.3 billion dollars due to the expiration of temporary taxes. After years of delaying the inevitable financial crunch, it is now time for lawmakers to develop a strategy to strengthen Louisiana’s financial standing.
Louisiana Governor John Bel Edwards and his staff are working diligently to come up with sustainable solutions for the state’s financial dilemma. They realize that Louisiana officials cannot borrow money each year and expect the state to thrive.
Governor Edwards knows he has to make tough choices in order for the state’s finances to become solvent. He has proposed that Louisiana lawmakers consider increasing taxes. However, legislators have not supported this idea.
Another action that Governor Edwards plans to take is to minimize the amount of Louisiana’s front-loaded expenses. He proposes that the state should pay its safety-net expenses on a monthly basis.
Lawmakers fully understand that the future of Louisiana’s finances is in jeopardy at this moment. That is the reason they are weighing their options to ensure that the state will have the resources to sustain its economy.
