Midyear spending cuts trend continues
For the fifth year in a row, midyear spending cuts must be made to the state operating budget.
The Revenue Estimating Conference, which determines how much money the state can spend, dropped revenue projections by $129 million Thursday for the current $25 billion state budget year.
The conference meets throughout the year because state government is constitutionally required to balance its spending with available revenue. The revenue projections adopted Thursday will allow the governor to make the necessary spending cuts on his own without legislative approval.
Weak sales and personal income tax collections are driving the cuts. Although people continue to buy cars, other spending is not showing up in the state’s tax receipts. State employment and income growth are not showing spectacular growth rates.
Commissioner of Administration Kristy Nichols, who advises Gov. Bobby Jindal on the budget, said she will release cuts to legislators Friday.
Nichols said the revenue forecast drops were not unexpected.
“We know we’ve got some decisions to make that are critical decisions,” Nichols said.
The cuts will fall on state agencies that receive money from the state general fund. Health care and higher education have the heaviest reliance on the state general fund.
The state’s financial problems began toward the end of Jindal’s first year in office, when the effects of the national recession started taking hold in Louisiana. Oil prices dropped. State revenue went flat or slumped.
The governor responded by freezing most new hiring, a savings measure he continued throughout his years in office.
The current revenue weaknesses bleed into the state budget that the Jindal administration currently is crafting to fund hospitals, colleges and other public services in the upcoming fiscal year.
Legislators already were bracing for a nearly $1 billion shortfall in the state spending year that starts July 1. Now that shortfall is even deeper, with revenue projections dropped by an additional $207 million.
Nichols said the administration would not advocate raising taxes to generate additional revenues.
The state budget is built on projections. Economists use complicated models to estimate how much revenue the state can expect to collect. When those projections fall short, spending must be cut.
House Appropriations Committee Chairman Jim Fannin, D-Jonesboro, said the state’s economic outlook is bleak given the flatness of personal income and sales tax collections. “Our people in Louisiana don’t feel good at this point about the economy, or either they’re spending more on the Internet and we’re not getting sales tax,” Fannin said.
For the current fiscal year, state officials lowered expected sales tax collections by $174 million based on what economists’ projections were in April. Individual income tax estimates fell by $49 million.
Corporate franchise and income tax is expected to come in above projections, but most collections will not arrive until April, May and June.
“I feel like I am in a casino betting blindly,” Manfred Dix, economist for the Division of Administration, told state officials about his estimate on corporate collections.
Both Dix and Greg Albrecht, chief economist for the Legislative Fiscal Office, predicted a huge drop in the sales tax forecast.
Senate President John Alario, R-Westwego, said sales tax collections from Christmas shopping have not been tallied.
House Speaker Chuck Kleckley, R-Lake Charles, made a similar point, noting that revenue source could boost collections.
“If you had an extraordinarily good Christmas, that would be a surprise and very good for us,” Albrecht said, explaining that he already included holiday sales in his estimates.
State officials opted to adopt Dix’s slightly more pessimistic revenue projections.
“Things don’t look very rosy here and I suppose we should go with the worst numbers here and hope for the best down the road,” Alario said.
The four-member panel backed Alario’s suggestion without objection.
The projections do not take into account the federal fiscal cliff that is consuming lawmakers’ time in Washington, D.C.