Saving bonanza, redeeming debt puts LA on solid ground

Testimony taken by Louisiana’s Revenue Estimating Conference for its official forecast due in a couple of months confirms the recovery bubble nearly is over, and should warn that now is the time to put state finances in the position to survive the long-term effects of natural disasters and decades of inferior state fiscal policy.

With Louisiana recovery spending financed by the American taxpayer approaching $150 billion as a consequence of the 2005 hurricane disasters (and potentially a couple dozen more billions that could be thrown on to the amount courtesy of the 2008 storms) pumping an unprecedented bonanza into state coffers, the flip side of course is that the state lost economic productivity from the storms that now is getting translated into drops in both personal and corporate income totals. Another short-term factor will be the income tax cut kicking in next year.

While oil prices will continue to provide some cushion, by fiscal year 2009-10 deficits will loom at current revenue levels. Further, time must be bought for the economic benefits of the tax cuts to kick in and to accomplish other restorative tasks like health care spending restructuring in the state. Finally, national forces such as an economic slowdown due to consequences of government overregulation of the mortgage industry and future potential pitfalls such as bad policy that could come from Democrat Party control of the White House and Congress need factoring in Louisiana budgeting decisions.

With that in mind, a budget surplus on the order of at least $500 million appears likely for the concluded fiscal year, and maybe a higher amount for this fiscal year. If so, given current levels, most of the 2007-08 fiscal year surplus should be pumped into the Budget Stabilization Fund to ward off a 2009-10 deficit (one third of the fund could be used to fund current recurring expenditures, which would be close to that $500 million figure, every two years). Perhaps the remainder could be used for a very few vital capital projects around the state, but any surplus for this the 2008-09 fiscal year should be first deposited into the fund, then used to pay off debt, freeing interest payments for future use.

Stopgap measures such as these can buy the necessary time by cushioning the budget for tax cuts engineered and/or eventually supported by Gov. Bobby Jindal to kickstart the economy and bring in more revenue to government. As long as the state saves this bonanza and doesn’t go on a spending spree for capital and other nonrecurring items any looming crisis can be avoided.