Oil prices drop is double whammy Friday, Aug 28 2015 

feet-to-the-fire
 Time to hold the pols feet to the fire!

At the August 14 meeting of the State Revenue Estimating Conference we learned that revenue predictions from oil revenues for the current fiscal year were based on $62/barrel.  The current price of a barrel is around $40.

Bad news

The rule of thumb in Louisiana is that for every one dollar drop in the price a barrel of oil below the estimate, the state loses $12 Million annually in revenues.  At the current oil price, the revenue shortfall will be roughly $264 Million.

Because of the way the leges structured the budget (Not because of the constitution.) that means significant mid-year cuts to Higher Education and Healthcare.

Additionally, for every cut to healthcare services it will be exacerbated by additional cut to in Federal matching funds.

More bad news

The impact of the dropping price of oil doesn’t stop there.  The $12 Million figure assumes that production remains the same.  In other words, the state will be taxing the same amount of oil, but merely at a percentage of a lower base.

Wednesday, we learned of another factor that will exacerbate the oil revenue decline.  The Baton Rouge Business Report’s Daily Report revealed the volume of oil being produce in Louisiana is dropping significantly.  Story here.

Since 2011, the average daily production thru the first half of 2015 has dropped by over 40%.

Thus, not only has the base price oil on which the taxes are collected have dropped, but the volume of the oil to be taxed has significantly declined.  How much more in mid-year cuts to Higher Ed and Healthcare is anyone’s guess because our state officials have chosen to ignore the issue.

Breaking the Silence

The Lake Charles American Press editorial on Wednesday sounded a wake-up call which thus far has been met with resounding silence by our elected officials.

Delaying a reduction in the revenue estimates will only result in dramatically larger cuts to services and higher taxes later in the fiscal year.

Election issue

Other than a promise of a special session next year, the state’s fiscal crisis is not even on this fall’s election radar.  If the leges and gubernatorial candidates won’t even address the issue it is safe to assume that none have a plan to fix the budgetary problems even short-term much less long-term.

I’ve found no evidence that politicians after they are elected are any smarter than before they are elected.

I foresee “Band-Aids” in terms of dramatic cuts to Higher Education and Healthcare in the second half of this fiscal year, plus higher taxes and fees.   None are solutions.

It’s time for us voters and the media to insist the candidates for both the lege and governor to discuss publicly real solutions to real fiscal problems.

If the leges didn’t have time to fix the budget problems in 60 days during the 2015 Regular Session, it is hardly likely they can fix an even worse problem in a 30-day Special Session prior to the 2016 Regular Session.

If not now; when will we force the budget issue to be addressed?

C.B.

Prudence above politics Tuesday, Aug 25 2015 

elephant

It’s not a mirage; he’s there.

Friday, August 14, the Revenue Estimating Conference met to revenue the revenue projections for the fiscal year began July 1.

Just six weeks into the fiscal year $4.6 Million had to cut from the current state.  Despite being told that Higher Education had escaped the budget axe, we learned $3.8 Million of that number was cut from Higher Education.

Higher Ed leaders were so taken by surprise we are yet to be told whether faculty be laid off, furloughed or more programs will be eliminated?

Elephant in room

The only thing dropping faster in Louisiana than oil prices are Bobby Jindal’s favorability ratings.  Yet the members on the REC (except LSU Economist Dr. Jim Richardson) chose to ignore the elephant in the room.

The reason given for not addressing the precipitous drop in oil prices was that the staff needed more time to evaluate the trend.

Translation: We can’t let the public know that we may have to slash Higher Education and Healthcare by upwards of a quarter of a billion dollars before this fall’s election.

With due respect to the staff’s ability, it’s not rocket science.

Two of the biggest producers of oil in Louisiana, Chevron and Shell have already announced major layoffs at their corporate offices, in the Metro New Orleans area.  That should be all the information needed to adjust the mineral revenues projections downward from $62 per barrel.

If that wasn’t enough the Wall Street Journal reported that oil is likely to drop below $40 per barrel.   Additionally, they anticipated the oil price recovery had been delayed from the latter part of 2015 to the latter part of 2016 or even 2017.

Closer to home, [Dr.Richardson, …, doubts oil prices will rebound enough for the $62 per oil barrel price to remain valid. Oil would have to go up over $70 per barrel later in the year, which is unlikely… Times Picayune, August 14, 2015.

Sooner addressed the better

The sooner state agencies know that the revenues will be less than expected; the easier it is for them to make adjustments in their budgets such at not filling vacant positions, reducing travel, etc.  A $200 Million adjustment to the budget not made now becomes the equivalent of $400 Million if the leges wait until January to make the announcement.

On the other hand, it the mineral and other revenues come in as previously expected, the state could end the year with a surplus.  The surplus must be used to pay down debt, the Unfunded Accrued Liability (UAL) of the retirement systems, highway construction and other capital projects.  All of these are in desperate need of funding and don’t grow the size of government.

Prudence above politics

By preventing state government from growing beyond recurring revenues, it will reduce the amount of taxes that must be increased during the special session every candidate for governor has said he will call after taking office in January.

While rare, the above will not require any legislation.  It is merely an exercise in fiscal responsibility.

It’s time for our elected officials to put the best interests of the citizens of Louisiana ahead of politics.  And the time to start is NOW.

C.B.

Look that gift horse in the mouth Thursday, Aug 20 2015 

pissonmyleg

During the 2015 Regular Session the leges pass a “temporary” (wink, wink, nod, nod) 1% tax increase ( HCR 8) on all non-residential electrical utilities.

The tax increase (Regardless of what Bobby Jindal and Grover Norquist call it.) received less than the constitutionally-mandated two-thirds (70) vote by the House of Representatives.  As a result several individuals companies led by the Louisiana Chemical Association filed a lawsuit on July 1 questioning the constitutionality of the tax increase.

Last week, the Louisiana Department of Revenue (“LDR”) said, should the litigation be successful, they would gladly refund the unconstitutional taxes paid.  This magnanimous gesture would save the poor rate payers the burden of paying the taxes under protest.

Motive?

On the surface, it may seem like a nice gesture to refund taxes not owed.  Upon further review, it is more like a person showing up at one’s door saying:  “I’m from the government and I’m here to help you.”

The real purpose of the LDR’s gesture is to allow the Jindal Administration to spend the extra $100 Million plus without worrying about having to pay it back.   At worst, it would saddle the next administration with finding the funds among the already projected $713 Million revenue shortfall.

Options

Louisiana Law Blog lays out legal options for avoiding being bitten while checking this gift horse’s mouth.  ( See report here.)    All you have to lose by not reading this information is your money.

Disclosure

As a matter of full disclosure, I have no pecuniary interest in this lawsuit.  However, as a citizen,  I’m insulted by politicians and bureaucrats who pee on my leg and then try to convince me it’s raining.

If you know someone who pays non-residential utilities, feel free to pass this on to them.

C.B.

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