Oil prices drop is double whammy Friday, Aug 28 2015
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.
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.
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?
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