Louisiana Gov.-elect John Bel Edwards (D) begins his administration doing what no politician ever wants to do: calling a special legislative session to discuss the possibility of raising taxes to cover a budget shortfall.
Edwards is not alone. At least half a dozen states, which are all America’s oil-richest, have found themselves energy-rich and cash poor. Most are looking now at spending reductions. A couple of them might even have to create new taxes, all because of falling oil prices that are crushing their budgets.
Reuters reported that Moody’s Investors Services analysts identified Alaska, Louisiana, New Mexico, North Dakota, Texas, and Oklahoma as states where legislatures are going to be forced to either use budget reserves or increase tax revenue to balance budgets because of falling oil prices.
However, the Moody’s analysts also said New Mexico, North Dakota, and Texas were in better shape than the rest because their economies were more diversified.
So that leaves Alaska, Louisiana and Oklahoma as the three oil-rich states that are going to need some ICU kind of political and financial solutions.
Alaska Gov. Bill Walker (I) doesn’t see any way out of his state’s financial mess without slashing state services and employment, along with raising taxes and fees. Alaska is faced with a $3.5 billion budget deficit, much of which is blamed on shrinking revenue from oil industry taxes.
The situation is so dire that Walker is even talking about imposing a state income tax on Alaska residents for the first time in 35 years.
He has proposed a six percent income tax along with a 6.7 percent cut in state spending.
Walker wrote on his Facebook page that Alaska has the “tools to solve our budget challenge…we just need the wisdom and the will to act.”
Rep. Mark Neuman (R) told USA Today he wants time to study Walker’s plan before debating the budget proposal.
“I personally do not feel there are enough reductions in our operating budget, but let’s evaluate the proposals, listen to the public and then put together a budget,” said Neuman.
Another Alaska Republican, Sen. Anna MacKinnon, said she sees the Walker proposal “as a starting point” for the discussions to come.
Faced with a drop of nearly $901 million in available funding, Oklahoma Rep. Bob Cleveland (R) admitted to the Norman Tribune the state does face a “fiscal predicament” in 2016.
The idea of raising taxes has not been brought to the Oklahoma Legislature’s debate table yet, but Cleveland raised the possibility of severe budget cuts.
Close to 25 percent of the state’s revenue comes from some sort of tax or fee associated with Oklahoma’s oil and gas industry. When prices for those products fall, so do tax receipts.
“We live in an energy-producing state, and there are just going to be ups and downs in the industry that will affect our revenues,” Cleveland said.
“I believe this will give us the opportunity to take a hard look at what we are spending money on,” Cleveland said, “and determine whether it is really a priority.”
If there is a bright side to Oklahoma’s “fiscal predicament,” House Minority Leader Scott Inman (D) said during a legislative forum in early December, it does give the state an opportunity to “evaluate where we need to improve as a state.”
At the same forum, the Oklahoman reported, Sen. John Sparks (D) said the state’s budget problems should, at the very least, force the Legislature to focus on something that is important.
“Given some of the stuff we did last session, I hope we are distracted by the budget,” he said. “We spent some time on goofy stuff, like trying to outlaw AP (advanced placement) history. To some degree, I hope some of those guys are distracted by the budget.”
Although Sparks might have sounded a bit light-hearted at that forum, the budget problems faced by states that depend on revenue from their oil and gas industries, at a time of plummeting prices, are no laughing matter.
Louisiana Lt. Gov. Jay Dardenne, chosen to lead the state’s Division of Administration by Gov.-elect Edwards, said that, in the current fiscal year, Louisiana faces an estimated $750 million shortfall. That’s nothing compared to the FY 2016-2017 budget when the state is expecting revenues to fall short of spending by $1.9 billion.
Dardenne sent a letter to each Louisiana legislator, explaining the FY 2016-17 budget is projected to fall $1.3 billion short of revenue projections.
On top of that is another $600 million revenue shortfall due to the price of oil falling from the Louisiana Revenue Estimating Conference’s November prediction of the price of oil being $48 per barrel, from its current rate of $37.89 per barrel.
Dardenne also blamed practices of Gov. Bobby Jindal’s administration such as “excessive fund sweeps, tax exemptions and credits that are more generous than we can afford.” But he added the drop in oil prices and the resulting fall of mineral tax collections couldn’t be ignored.
Neither Gov.-elect Edwards nor Dardenne (R) is talking specifically about creating or increasing taxes to cover the $600 million lost to falling oil prices.
But consider this: Dardenne wrote in his letter to the Legislature “we commit to you that we are ending the era of gimmicks and trickery.”
And the New Orleans Advocate reported Edwards told the New Orleans Chamber of Commerce Dec. 18 that Louisiana’s budget problems couldn’t be solved by spending cuts alone.
“We are going to have to put all options on the table,” Edwards said.
Jan Moller is the executive director of the Louisiana Budget Project in Baton Rouge and said there’s no way the state can solve its budget problems, given the price of oil, without raising revenues.
“The only question is,” Moller said, “how do you do it?”