Hefty sales tax revenue drop in Louisiana causes $197 million state budget deficit

Tax revenue drop causes $197M La. budget deficit

BATON ROUGE, La. — Louisiana’s revenue forecast dropped $197 million Thursday, driven by plummeting state sales taxes as shoppers shut their wallets and businesses shrink spending in the tight economy.

The state income projecting panel, the Revenue Estimating Conference, revised tax collection estimates sharply downward for the current fiscal year that ends June 30, continuing a recent trend of forecast revisions to reflect drops in tax collections.

Thursday’s changes create a deficit in the $29 billion budget that must be closed in the coming weeks.

Economist Greg Albrecht said sales tax revenue has slumped, and the uptick in severance and royalty money from oil prices isn’t enough to combat it. Albrecht, the chief economist for the Legislative Fiscal Office, said he projects a more than 14 percent decrease in sales tax collections compared to last year — and he said that could get worse.

“There’s just a massive retrenchment of spending for households and businesses,” said Albrecht, whose revenue projections were selected by the conference as the official forecast. “People just aren’t spending.”

Estimates of business tax collections also were cut, along with revenue from gambling taxes.

The forecast for next year was no less grim. The Revenue Estimating Conference dropped the income projections that will be used for next year’s 2010-11 budget by $194 million, worsening a budget shortfall that already had been expected to top $950 million.

Lawmakers on the joint House and Senate budget committee are expected to adopt the newest revenue figures Friday. After that, Gov. Bobby Jindal will have 30 days to recommend cuts in this year’s budget to close the $197 million gap. Those cuts will fall on top of reductions levied across most state agencies to balance the budget when it was crafted by lawmakers.

“We’re going to have to make reductions. All state agencies will be asked to participate,” said Commissioner of Administration Angele Davis, the governor’s top budget architect.

Jindal planned a Thursday afternoon news conference to talk about the latest revenue forecast changes.

The midyear budget deficit doesn’t reflect other projected multimillion-dollar gaps in public school funding, prisoner housing costs and the state Medicaid program that lawmakers and the Jindal administration already faced in the current fiscal year.

With the latest forecast revisions, the state’s general fund is projected to drop $1.5 billion this year, or more than 16 percent, when compared to the previous budget year.

“Anything that’s either income-based or spending-based, they’re either going down or they’re at risk,” Albrecht said.

The overall income dip is tied to several factors: the national economic woes, a drop in the prices of oil and gas from which the state derives tax and royalty income, and an array of tax breaks approved by lawmakers in recent years.

Personal income tax collections by the state are expected to drop $373 million this year, nearly all of that tied to tax breaks given out to middle- and upper-income taxpayers. However, Albrecht said he worried income tax may fall further because of economic problems and a weakened labor market.

State general fund revenue is expected to begin rising again next year, but only modestly, with gains projected at about 2 percent a year for the next few years — not enough to continue the current level of state services, cover the growing costs of retirement and health care and account for inflation.

The situation is sharply different from previous years when Louisiana saw hefty growth in tax collections, driven by post-hurricane recovery spending and skyrocketing oil prices.