LA on brink of huge new spending commitment

Lost in the counterproductive Wuhan coronavirus pandemic policy of Democrat Gov. John Bel Edwards is how it further kicks and enlarges Louisiana’s unemployment insurance bill down the road.

With his declaration last week that rolled back ceilings on gatherings, closed bars, and required wearing of face coverings in public places that he said would address rapidly increasing positive infection case numbers and declining hospital capacities, he also threw another monkey wrench into one of the worst state economies already hampered by business restrictions. Its latest unemployment rate of 9.7 percent more than doubled last year’s at this time. Worse, its employment/population ratio fell below 50 percent and was the nation’s seventh worst, indicating a disproportionate part of the working-age population had exited the workforce entirely.

As a result, the state has drawn deeply upon its unemployment insurance reserves, about halving the balance it had with the federal government in the past three months. The only bright spot is it has emptied a bit slower than anticipated, with the latest numbers indicating it won’t have to borrow from the federal government until the end of September.

And when that day comes, Louisiana will have until November 10, 2022 to repay whatever it borrowed in 2020. If it doesn’t by then, federal tax rates, of 0.6 percent of the first $7,000 of an employee’s wage, will rise on state employers, plus the state will owe interest on the balance.

But by state law, the impact will be felt much sooner than that. R.S. 23:1474 specifies a sliding scale of benefit payments and employer contributions depending upon how much money the trust fund has. The latest estimate has the state falling into the lowest category, which taxes employers at a higher rate on an extra $1,500 per employee wage, while dropping the weekly maximum benefit from $247 to $221.

Technically, this won’t go into effect until the Revenue Estimating Conference certifies the trust fund has fallen that low. By the time it next meets as autumn begins, the state already will have to borrow.

Note the double deleterious economic impact to come: employers pay more in taxes while the out-of-work receive reduced benefits to inject into commerce. Both will sap the economy – and state tax coffers – while the state’s debt to the federal government burgeons. It could climb into the several hundreds of millions before year’s end.

The drag on the economy will exacerbate the state’s ability to raise funds to pay off the debt, meaning cuts in other government services or else taxes rise, federal to service the debt and/or state to scrounge up the money in time. And if either tax increases, that depresses economic activity and state revenue-raising even more.

However, the vicious cycle begins with Edwards placing more clamps on the economy and keeping them on longer than needed. And his budgeting – aided by a Legislature that refused to hold his feet to the fire and pay now rather than more later – compounded the problem when he rejected use of federal aid to pay out benefits in favor of using it essentially on state current operations, putting off reducing spending now to match lower future revenues.

The time bomb is ticking, but it seems to concern Edwards little.