Louisiana's forecasting panel Monday slashed the state's income projections by $1 billion because of the coronavirus outbreak, blowing a hole in next year's budget as the virus's economic fallout threatens deep cuts across state services.
The estimates set by the Revenue Estimating Conference were the first attempt to quantify the damage done to Louisiana's tax collections by the COVID-19 disease and the widespread shuttering of businesses in the pandemic.
The conference dropped the income forecast for the budget year beginning July 1 by about $165 million in tax and fee dollars dedicated to specific agencies and $868 million in general tax collections used across the state budget.
Louisiana has two separate problems depressing state tax collections: widespread unemployment and shuttered businesses from the virus outbreak and a resulting steep decline in oil prices worsened by an international feud. More than 310,000 people have qualified for unemployment benefits.
"There's no crisis we've had that even comes close to this," said Greg Albrecht, the Legislature's chief economist. He added: "This is a (Hurricane) Katrina-sized downgrade in the forecast."
With the changes, the state revenue forecast fell from $12.5 billion next year to $11.5 billion. The ripple effect could be even larger. The state will lose federal matching dollars if it can't afford to put up its share of a program's cost, for example.
It's unclear how much federal coronavirus aid can help fill gaps, because of limits on the money.
Albrecht and Manfred Dix, the chief economist for Gov. John Bel Edwards' administration, cautioned that their figures used to build the estimates were highly uncertain because it was difficult to determine how long the economic shutdown could last and when consumer confidence will return.
"People have to feel comfortable going out. I went to the store this weekend, and if this is the new norm, it sucks," Albrecht said.
The four-member panel also reduced the forecast for general tax collections in the budget year ending June 30 by $123 million. Lawmakers will have to make cuts to the existing budget or find ways to offset the loss with other revenue sources.
The conference includes: Senate President Page Cortez; House Speaker Clay Schexnayder; Commissioner of Administration Jay Dardenne, the governor's chief budget adviser; and Stephen Barnes, an independent economist from the University of Louisiana at Lafayette. To set the new forecasts required a unanimous decision.
The current legislative session must end June 1, and lawmakers are starting to question whether they can complete a budget in time — or if they'll need to convene a special session to finish crafting the spending plans.
"I'm less optimistic that given the amount of time that we have left, that we're going to be able to get final passage of a budget" in the regular session, said Cortez, a Lafayette Republican.
Edwards is encouraging lawmakers to pass a budget in the current session. He expects a special session later in the year, around October, will be needed for further adjustments.
Louisiana received a $1.8 billion direct aid grant from Congress. The governor intends to earmark $810 million for local government agencies and the remaining dollars for state agencies.
But federal guidelines have offered limited flexibility for the dollars, making them unavailable to offset tax revenue lost because of the virus. State and local government leaders hope Congress will loosen those rules.
Amid the worsening projections, Republicans were advancing proposals that would strip further tax dollars from state coffers.
On Monday, the House tax committee voted 11-5 for a one-year suspension of severance taxes on the oil and gas industry, which could cost hundreds of millions of dollars.
House Ways and Means Chairman Stuart Bishop, a Lafayette Republican, said his legislation would encourage the oil industry to drill in Louisiana.
"You have to bring business back," he said.
Opponents said tax breaks make no sense when Louisiana will be grappling with deep cuts that could threaten health care services and education programs.
"Let's not make it worse," said Edgar Cage with Together Louisiana, a group of faith-based and community leaders.
The severance tax break moves to the House floor, along with a separate measure to temporarily cut corporate taxes by an estimated $9 million.