Starve the Budget, Feed the Business Interests

"We have to do something to keep this industry here. If we do not, the state of Louisiana will shrivel up and die!” -- Rep. Stuart Bishop, Ways and Means chairman

Louisiana’s two chief fiscal analysts did not spare members of the Revenue Estimating Conference from the unvarnished truth, though they attempted warnings before presenting their best calculations of the unvarnished truth Monday afternoon.

“You don’t want to hear the numbers because it will give you a shock,” said Division of Administration fiscal analyst Manfred Dix.

“These are very, very bad numbers,” Legislative Fiscal Analyst Greg Albrecht said, in follow-up to Dix’s warning. “The state revenue outlook is decidedly negative.”

“And we don’t know how this thing will evolve over the next several months,” Dix added.

Albrecht told the forecasting panel he expects the current fiscal year, which ends June 30, will see a $123.1-million dropoff from the state income that had been previously forecast and budgeted. COVID-19 and the response to the virus will deal an even bigger blow to state finances in the fiscal year that starts July 1.

“No crises we’ve had comes close to this,” Albrecht said. “For Fiscal Year 21, I’m projecting a state general fund reduction of $867.5 million. That’s a Katrina-sized downgrade, without any expected rebuilding rebound.”

Citing a current number of 310,000 in continuing unemployment claims, a resultant drop in income tax collections, and a decline in spending and thus in sales tax collections, Albrecht didn’t try to put a shiny face on it.

“I expect at least four really bad quarters before the overall economy even starts to recover. Our internal economy will come back first, but our external economy, including tourism? It’s anybody’s guess.”

As for a rebound, a return for Louisiana’s mineral revenue – oil and gas severance taxes and royalties – Albrecht was grimly clear.

“Demand for oil and gas will have to return first. There is an oversupply at present, and that means working off the surplus inventory. Additionally, the U.S. will have to dramatically reduce its production from shale sources in order for the supply to equalize with demand and bring prices back up.”

Dix, who went next, said simply, “I have a very short statement. I agree with him.”

Manfred Dix (left), Greg Albrecht (right), Commissioner of Administration Jay Dardenne (inset) at May 11 REC meeting

Both analysts were equally candid about the many uncertainties and limited data contributing to their projections, prompting Commissioner of Administration Jay Dardenne, who is present chairman of the forecasting panel, to remark, “Now, more than ever, we are the Revenue Guesstimating Conference, and we appreciate your work in trying to get your arms around this very thorny problem.”

For all the wrangling the REC’s legislative representation had done over the accuracy of numbers at prior forecast setting meetings, it almost seemed as though the House Speaker and Senate President had pre-agreed that this forecast was satisfyingly somber enough not to nitpick, as the panel voted unanimously to adopt Albrecht’s version as the officially gloomy forecast.

In the meantime, House-initiated measures have been moving forward out of Ways and Means and Appropriations, attempting to force more fiscal fasting on a budget that’s already guaranteed to be malnourished.

Last Tuesday, House Appropriations advanced HB 562 by Rep. Rick Edmonds (R-Baton Rouge), to limit state spending to 98% of the REC forecast. That takes another $183-million out of the FY 21 budget.

Another Appropriations-okayed measure, HCR 8 by Rep. Beau Beaullieu (R- New Iberia) removes $1.05 billion from the allowable spending limit for the subsequent fiscal year, FY 22.

Both of those measures are up for vote by the full House on Wednesday.

And before the REC meeting Monday at noon, Ways and Means pushed ahead with two tax-cutting resolutions, both authored by the committee’s chairman Stuart Bishop (R- Lafayette). HCR 66 (which, as a resolution, is veto-proof, since it never even goes to the Governor) would suspend collection of corporate franchise tax, which the fiscal note said would reduce state revenue by nearly $413-million. The measure was amended to just suspend collection of the lowest tier, which would provide some tax relief to the majority of Louisiana small businesses. Opinions were offered that the change would likely mean the new fiscal note would come in at an eight or nine-million dollar revenue loss. With that reduced number, there was no opposition to advancing the resolution to the House floor.

Bishop’s HCR 65 was and is far more problematic. It completely suspends state collection of oil and gas severance taxes for all of the upcoming fiscal year. The estimated hit to state revenues was originally given as $555-million, based on projections on record prior to Monday’s adoption of new numbers. The updated reduction in state revenues, should it pass, comes in closer to a “mere” $231-million.

The arguments for giving O&G a freebie year haven’t become more rational since last week’s Ways and Means Committee hearing on Rep. DeVillier’s HB 506. Rep. Jason Hughes (D- New Orleans) asked committee chairman Bishop point blank, “Why do we need your measure, when we’ve already got the DeVillier bill?”

“To protect the oil and gas industry, and to protect the state of Louisiana,” was the best, if lame, answer that Bishop could provide.

“If we’re removing this revenue, how do you plan to replace it?” Hughes asked.

“We’re going to have to make cuts,” Bishop stated, “But we have to do something to incentivize these businesses to get people back to work. Oil and gas is on life support, and the greatest economic minds in the state say this is something we need to do.”

Bishop never named these “greatest economic minds,” so we just have to take his word for it.

Rep. Hughes then pointed out the section of the state Constitution requiring the suspension of a law by the same standard as enactment of the law: in the case of taxation, that’s a two-thirds vote. Committee vice chairman, Rep. John Stefanski (R-Crowley), presiding over the hearing while chairman Bishop presented his measure, breezed right on past that assertion.

Rep. Matthew Willard said, “I appreciate your concern for the businesses in our state, but it’s not just oil and gas that’s hurting. It’s mom and pops, and Fortune 500 companies, too. For them, and all the people who work for them, I have a real concern about what this would do to our state budget.”

Bishop began to bluster.

“We have to bring this business back. If we don’t incentivize them, they will go to Texas or Oklahoma or North Dakota. We have to find a way to keep them in Louisiana and not ship these jobs to every other state!”

Willard replied reasonably and rationally, “This is a global crisis. The pandemic is everywhere. The oil price crisis is global, too. You don’t really believe they’re going to pick up their toys and tools and move to another state, do you?”

“Are you kidding me?” the by now irate committee chairman shouted. “Do you really think they’re not going to Texas? We have to do something to keep this industry here. If we do not, the state of Louisiana will shrivel up and die!”

LOGA and LMOGA, the Pelican Institute and NFIB each put in a card in support. The Police Jury Association, Together Louisiana, and the Power Coalition each had someone speak in opposition. There were also 79 emails submitted, opposing the resolution. It advanced, however, 11-5, along strict party lines.

The oil extraction industry in Louisiana is on life support, as Rep. Bishop said. The oil refining industry and its jobs, along with the petrochemical plants and their jobs, are not going anywhere else. (No one else will have them.) But rather than trying to jolt the drilling and pumping oil out of the (sinking) ground sector back into productive life by juicing it up with tax dollars, perhaps we should simply pull the plug now, and let it rest in peace.

Frankly, this suspension of severance tax scheme seems an illustration of what’s meant by the old adage “beating a dead horse.”

Should these spending restrictions and revenue-reducing “incentives” for business be enacted, they’ll subtract close to half-a-billion more dollars from the already slim forecast for the next fiscal year. Louisiana’s next budget will have $1.33-billion less to spend on providing state services, at the very time when the people of the state need government services the most.

Perhaps Louisiana’s legislative leadership has not yet figured out this virus is not a variety of the flu; rather, the science says it is a relative of the common cold. Instead, it seems many of our lawmakers must be focusing on one of the primary symptoms of COVID-19 – fever – as their guidepost for figuring out which bills Louisiana is going to pay, and how. You can almost hear revenue and budget committee members chanting the old aphorism under their breath; “Feed a cold, starve a fever.”

The adage has been traced to a 1574 dictionary by John Withals, which said “fasting is a great remedy of fever.” Withals was a schoolmaster, best known for his 1556 publication of “A Short Dictionary for Young Beginners,” an English-Latin vocabulary. Nearly 450 years later, medical science is saying the best, most accurate version would be “Feed a virus, starve a bacterium.” But I digress…

We are dealing with a virus pandemic here, there. and everywhere. Even the federal government has seen fit to feed money into personal budgets and state treasuries, so the people of this nation will be able to feed their families, and not be starved of services so desperately needed.

Those lawmakers we the people of Louisiana have elected and tasked with making sure our tax dollars are spent wisely and for our benefit do certainly seem determined to feed them to business and industry, instead.

Because jobs.

310,000 Louisiana residents on unemployment.

Math — it’s what’s for dinner.