At the last meeting of the Revenue Estimating Conference, Edwards’ representative Commissioner of Administration Jay Dardenne got all hot and bothered when House Speaker Republican Clay Schexnayder rejected his desire to have the panel declare that the state had $170 million more for this fiscal year and $103 million for the approaching one. The speaker argued for, respectively, lower and dramatically lower figures, saying they should keep “some conservative in the forecast.”
Dardenne objected to this that he called a politicization of REC forecasting – despite the process set up to induce political judgment into its decision-making – and voted to prevent the lower forecasts favored by Schexnayder and GOP Senate Pres. Page Cortez from becoming official. By doing so, he ended up keeping even more conservative in the official prediction, which remained unchanged from last year. And that has turned out to be a good thing.
That April, 2019 forecast was built on $59 a barrel oil. Monday, after a couple of weeks of whipsawed market trading related to fears over the coronavirus, oil closed at just above half that price. It won’t stay that low – that market has become terribly oversold even with a looming price war – but it won’t see $50 again anytime soon.
An old saw recognizes that for every dollar changein the price of oil, that equates to a $12 million change in Louisiana staterevenues. Until this month, it had averaged around $57. Three months at, say, $37, drags down the mean for the year to $52. Which means for this fiscal year, these lower pricings will have cut that $170 million in half.
And you don’t even want to think about the next fiscal year. Let’s be generous and say the price hangs in there averaging $45 for the year. Goodbye to the entire $103 million and then some. In fact, at the next REC meeting the principals may have to cut projections from the forecast of nearly a year ago.
This will make it politically difficult for Republicans to repeal part of all of the 2018 temporary sales tax hike renewal supported by Edwards and used as his main prop to his campaign assertion that he brought stability – meaning no mid-year deficits – to the budget. However, it will make impossible Edwards plans to spend more.
Witness his opening remarks to the 2020 Regular Session of the Louisiana Legislature. There, he asked legislators to devote $30 million to higher education plus tens of millions more to fully fund Taylor Opportunity Program for Students awards and to give out more in GO Grants, the need-based college aid program. He also asked for $39 million more to fund teacher pay raises, and $25 million more for early childhood education. That will end up taking more than the $103 million right there, and doesn’t include adjustments to the baseline budget for inflation and the like.
All of this points to the fallaciousness of the Edwards stability claim. Manipulating tax revenues by keeping some of the 2016 increase, rather than cutting spending, closed the gap – which will last only until the tax’s expiration in 2025 in any event. Recall that general fund spending under Edwards has increased at nearly twice the rate on inflation, and if it had just held at the rate of inflation the state would be over $400 million in the black and not needed the increase.
Louisiana’s budget has no stability because it has not focused on spending restraint to right-size state government. Edwards’ claims of stability rested on a castle in the sand. And now the tide has come to wash it away and reveal the falsity of that boast.