Tax Revenue Lags in Louisiana

Oil prices have boomed in recent months and Louisiana is one of the nation’s top oil-producing states. Louisiana’s latest revenue forecast, though, is a surprising bust.

Earlier this week, Louisiana’s Revenue Estimating Conference announced that it was reducing the amount of general fund revenue it expects to bring in the 2012 fiscal year, which ends June 30, by about $200 million. Plus, the revenue forecasters cut expectations for the 2013 fiscal year by about $300 million too. Even before the new revenue prediction, lawmakers had been trying to close a budget gap of close to $900 million for 2013. Now, the task will be even more difficult.

For both years, the main reason the forecasts were revised downward was lower expected personal income tax revenue. Revenue from the personal income tax for the 2012 fiscal year is now projected to be just slightly higher than 2011. “We had forecasts of it that turned out to be wildly optimistic,” says Greg Albrecht, the chief economist of the Louisiana Legislative Fiscal Office, “but to me the big concern is that we’re barely besting last year in what should be the second year of our recovery.”

The new revenue numbers will mean the legislature will be making a new round of budget cuts on top of cuts they made in previous years, since Governor Bobby Jindal and other lawmakers have pledged not to raise taxes. Where exactly the cuts will fall remains unclear, though the plan Jindal announced in February called for eliminating more than 6,000 state government positions.

In suffering these new budget problems, Louisiana stands out. Louisiana was one of only seven states where year-over-year tax revenue declined during the fourth quarter, according to a new report from the Nelson A. Rockefeller Institute for government.

The two states with the fastest tax revenue growth during that period were North Dakota, which ranks third nationally in crude oil production as of January, and Alaska, which ranks second. Louisiana, which ranks seventh in oil production, is seeing some benefits from this boom. The new forecast revises severance tax collections and royalties up, but not as much as it revises income tax revenue down. The budget gap exists for 2013, even though the Revenue Estimating Conference projects that oil will stay at $100 a barrel.

John Maginnis, a longtime Louisiana political columnist, says the big surprise for lawmakers was the hole in the current year’s budget. Since there are only two months left in the fiscal year, lawmakers don’t have many options to close the gap. They may turn to the state’s rainy day fund, though that would take a two-thirds vote of both houses of the legislature.

There are two theories of why revenue isn’t meeting expectations. One is that the Louisiana economy remains weaker than predicted, though the state’s unemployment rate is below the national average. The other is that various tax credit programs are growing more quickly than anticipated, limiting the amount of money the state brings in.

Regardless of which theory is right, Louisiana’s ongoing revenue problems are surprising lawmakers and economists alike. “We’ve tried to get out ahead and bite the bullet,” Albrecht says, “and it seems like every six months we have to bite another bullet.”