To avoid ‘catastrophic cuts,’ Louisiana could use $1B in federal funds to balance budget

Louisiana state lawmakers and Gov. John Bel Edwards’ administration found common ground as they started moving the state budget Thursday, with a House committee largely agreeing to the governor’s proposal to use nearly $1 billion in federal coronavirus relief funds to stave off “catastrophic cuts.”

The House Appropriations Committee advanced spending plans that no longer include boosted funding for schools, early childhood education and universities, which the Republican-led Legislature and Democratic governor were planning before the coronavirus pandemic blew a hole in state revenues. House Bill 105 provides state government legal authority for the next fiscal year to legally spend specific amounts of public monies to pay employees, supplement law enforcement salaries, cover medical insurance for about one-fourth of state’s residents, maintain parks, educate toddlers, graduate students and manner of other services. 

But after the pandemic and cratering oil prices lowered overall revenue forecasts by about $1 billion for the fiscal year starting July 1, lawmakers appear poised to avoid making deep cuts to state agencies that provide services. The Edwards’ administration proposed using $991 million in federal aid from the $2 trillion stimulus passed by Congress to balance the current and upcoming fiscal year budgets.

“It’s unprecedented to have money like this forked over by the federal government,” said Jay Dardenne, commissioner of administration for the governor. “There’s no question this money is getting us through this pandemic crisis.”

“Thanks to the CARES Act, you will not see $900 million in cuts in fiscal year 2021,” said Appropriations Chairman Jerome “Zee” Zeringue, R-Houma.

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State leaders had expressed concern that the $1.8 billion allocated by the stimulus to Louisiana’s state and local governments can only be used for certain coronavirus-related expenses, and not for lost revenue.

But the governor’s administration is relying on broad flexibility granted by the U.S. Treasury Department in using the funds. For instance, the feds told state leaders they can assume that payroll expenses for public safety qualified as coronavirus-related spending. That allows the state to use about $290 million in federal funding to spend on the state corrections department in fiscal years 2020 and 2021, freeing up state tax dollars.

There are still cuts in the budget proposal passed by the committee, which is scheduled for a vote by the full House on Tuesday. Along with the elimination of the $92 million in planned increased funding to colleges, K-12 schools and others, the proposal cuts $21 million from higher education, $40.7 million from the Louisiana Department of Health and $17.6 million in local housing.

But as some Republicans pointed out, colleges and other institutions have received other federal funding directly from the stimulus package. And the budget is far less dire than most expected.

“We were expecting some drastic measures that may have been taken with the budget,” said Rep. Gary Carter, a New Orleans Democrat.

The only significant difference between Edwards’ proposal and that crafted by the House Appropriations Committee was the committee proposed cutting an additional $12 million from the Louisiana Department of Health to increase funding for university agricultural centers and the judiciary, among other things.

As Republican lawmakers push forward tax cuts for the oil and gas industry and other sectors, Democratic Gov. John Bel Edwards on Monday came …

While the Republican-led Appropriations Committee largely agreed with Edwards’ administration on the budget bills, they disagree on how to best spend the $811 million of the $1.8 billion in federal coronavirus aid funding set aside for local governments. 

Dardenne’s office is moving forward with a plan to accept applications for reimbursement from local governments with coronavirus-related expenses in June. But the Appropriations Committee voted 13-9 to advance a bill that would handle the funds differently, putting $200 million to a program for businesses. 

Dardenne argued the move would delay the money going to local governments, creating more layers of bureaucracy. Zeringue, who offered up the proposal through amendments to a different bill, said he didn’t intend to delay the process. 

While local governments have been hit hard by lost revenue from the coronavirus – particularly in New Orleans – Dardenne said he expects there will likely be money left over in the $811 million pot of funds because the bulk of coronavirus expenses are incurred by the state. The funding can’t be used to fill lost revenue from things like cratering sales taxes from business closures. 

In the budget for the year beginning July 1, the state general fund was facing a reduction of $905 million in revenues. The proposal that advanced Thursday filled that hole by using federal coronavirus aid funding to replace most of a $597 million reduction in the state general fund, tapping $90 million in the state’s rainy day fund and cutting an additional $280 million from the original budget proposal – which included increases in funding for schools and other programs. The proposal features $61.5 million in increases largely for mandated cost increases.

The dramatic loss of revenue, which the state’s Revenue Estimating Conference voted to recognize earlier this month, came in large part because of a steep drop in oil prices. The previous forecast pegged oil at about $60 a barrel, and economists cut that outlook for the upcoming year to $32 a barrel, which cut the state’s revenue forecast from oil taxes by hundreds of millions of dollars.

The Revenue Estimating Conference also reduced the revenue outlook for the current fiscal year by $131 million, which the Appropriations Committee filled with federal funding, in line with Edwards’ recommendations.

State law requires that state spending must balance with available revenues.

Zeringue said the plan is for the full House to vote Tuesday on HB105, then move the operating budget measure to the Senate, which needs to make its changes and approve. Then the two chambers, typically, meet in conference committee to cobble an agreement that both chambers must approve before the session adjourns by 6 p.m. June 1. If they fail to both pass the bill by then, the Legislature must start over again in a specially called session. If the budget isn’t passed by July 1, state government loses its legal authority to spend public money.

Dardenne suggested it’s likely lawmakers will be back in June and again in the fall in special sessions to deal with the budget.

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