State budget heavily dependent on federal aid

BATON ROUGE — With an estimated $2 billion provided to Louisiana from a federal coronavirus aid bill passed in December and the likelihood of another federal stimulus package, state legislators are hopeful they can balance the budget for fiscal 2022 with no more than modest cuts.

The greater concern is the danger of a financial crisis in the following years. Louisiana budget experts project a slow recovery from the pandemic. Federal aid is expected to dry up after this year and many Louisianans have been hesitant to receive the vaccines that could help open up the economy.

Like most states, Louisiana was hit hard by the virus, and the problems were compounded by a catastrophic hurricane season. The state needed nearly $900 million in federal aid approved last March to patch up its finances for fiscal 2020 and the current fiscal year, which ends June 30.

Federal stimulus checks have encouraged Louisianans to spend more, and that has increased the state sales tax revenue beyond original projections. This, along with additional support for higher education and health care in the federal bill passed in December, should make the task of balancing the next budget more manageable.

Jay Dardenne, the commissioner of administration for Gov. John Bel Edwards, plans to kick off the negotiations on Feb. 26 by presenting a budget proposal to the Legislature that includes spending cuts based on current revenue projections.

But the potential for more federal aid is on the horizon. President Joe Biden’s push for a $1.9 trillion stimulus package, which would be the third federal aid bill since the pandemic started, could ease the state’s losses and put Louisiana in a stronger position for fiscal 2022, which starts July 1.

“It's anticipated that we get a federal stimulus. If that's the case, then we'll be in better shape,” said state Rep. Jerome Zeringue, R-Houma, the chairman of House Appropriations Committee. “Because the economy is in such bad shape right now, we’re hoping we'll have a similar situation to what we had last fiscal year, and we won't know that until the federal stimulus package comes in. We're anticipating it, but there's no guarantee until it comes. That's kind of what we need and are depending upon to continue to get us through this crisis.”

Louisiana’s Revenue Estimating Committee, composed of state leaders and economists, recently projected the state will have $228 million less than originally forecasted in the upcoming fiscal year. However, the state economists did not account for additional federal aid since it is still not certain.

Legislative Chief Economist Greg Albrecht echoed Zeringue’s overall feeling for the upcoming fiscal year. Given that Louisiana has performed better than he anticipated due to federal aid, Albrecht said he might be able to add more funding back into his forecast.

“We know there is more federal support out there,” he said. Referring to the upcoming budget negotiations, he added, “That doesn’t necessarily mean it’s easy or something won’t have to be cut or restrained in terms of spending, but we’re not panicking at this point.”

However, Albrecht also predicts a slow recovery. When the estimating conference met in January, he warned that employment and state revenue likely will not return to pre-pandemic levels until late 2023 to 2024. He said he and his colleagues aim to “be cautious and careful” in a time of considerable uncertainty.

Zeringue said that “if the recovery is going to take that long, we better hope the economy is back up and running again because if not, then we're going to have to make significant cuts.”

Jan Moller, executive director of the Louisiana Budget Project, said it is difficult to determine how quickly the state can open up again and when the budget will rebound. It is still uncertain when people will be more comfortable dining in restaurants, when tourists will return to New Orleans and when Louisianans will go back to commuting to work.

“Until people feel safe to travel and to gather in groups and to go to a festival, and just to go back to an office environment, we're not going to have a normal economy, or we are going to need the federal government to step up,” Moller said.

If the Legislature cannot find a solution to the ensuing budget problems starting in fiscal 2023, Louisiana residents will continue to face major challenges. Moller says that while some individuals have been able to adapt to the new normal, people who cannot work from home or face employment insecurity have been hit much harder. For Louisianans in the hospitality and restaurant industry, he says, the vaccine is essential.

Dardenne said in an interview that he is optimistic the vaccine distribution will reinstate a sense of normalcy as people will become more comfortable traveling and making purchases.

“The more we administer vaccines, the quicker the potential to return to whatever the new normal is going to be,” he said. “It will help kick start our economy.”

“I do believe we will see positive news on the economic front in the upcoming fiscal year that will span the second half of '21 and the first half of ’22,” he added.

As of Thursday, Louisiana has administered more than 800,000 coronavirus vaccines doses. And while the vaccine distribution is a key step to economic recovery, it may not mark the end of the financial downturn.

The state began administering vaccines in December, but there are still many residents who are hesitant. Louisianans are, on average, 56.9 percent likely to accept a vaccine, according to a January study conducted by Carnegie Mellon University.

Still, many state leaders have hope. Although budget cuts are a looming threat, there are opportunities to mitigate a financial crisis.

For Zeringue and state Sen. Bret Allain, R-Franklin, these opportunities come in the form of opening up the economy and investing their efforts in corporate and personal income tax reform. Reforming what Allain calls an old, broken system has the potential to attract businesses to invest in Louisiana and increase state revenue in the long term.

Jim Patterson, vice president of Louisiana Association of Business and Industry, said he and his colleagues are in contact with the Louisiana congressional delegation, asking for any and all assistance for small businesses throughout the state.

“We’re moving for businesses to be able to get back into business,” Patterson said. “That’s what’s going to help job creators bring their employees back to work. That’s what’s going to allow for the state’s revenue base to be restored and maintained.”

Amid widespread uncertainty, the largest question remains that if the state cannot fully recover by fiscal year 2023, how severe will budget cuts be, and where will they manifest?

Zeringue cautions that after the coming fiscal year, Louisiana can no longer rely on federal aid. Rather, the Legislature must work within its own capacity, either lifting restrictions to open the economy or implementing budget cuts, to address a projected deficit.

“We just need to be prepared,” said Zeringue. “Plan for the worst and hope for the best. And we will see what we can to minimize potential impacts and work towards shoring up those most critical resources and needs.”