Louisiana Tops Another List
Tourism and oil – our top revenue producers – are hit the hardest
COVID-19 has created many challenges. From health care to education, and business to government, every sector of our world has been affected by this crisis. As we begin to move from focusing on the health crisis to the economic calamity, the challenge does not grow easier.
Louisiana’s constitution rightfully requires that the state maintain a balanced budget each fiscal year. Unlike the federal government, our state cannot print money, and the people require the government to spend only the revenue brought in each year. In 2005, our state’s budget was $17.5 billion, including a $6.8B general fund (the amount that the legislature can appropriate). The current year’s budget is nearly double that amount: $31B, with a general fund of $9.7B.
Wallethub.com recently issued a report entitled “State Economies Most Exposed to Coronavirus,” and Louisiana topped the list. Our state’s economy is built on tourism and the oil and gas industry, and the state relies heavily on those sectors to provide tax revenue for the budget.
When West Texas Crude fell on April 20 to a negative value for a barrel of oil, the state’s economic crisis hit a low point. According to the state budget office, the Fiscal Year 2021 budget, which begins on July 1, initially estimated that the price of a barrel of oil would be $60. The same office estimates that every $1 drop in the price of a barrel of oil equates to $11M lost in state revenue. In other words, if the market for a barrel of oil mandates a value of around $10 a barrel, the impact to the state budget is $550 million.
The lost revenue from sales tax is potentially more significant. According to the Tax Foundation, the nation’s leading independent tax policy nonprofit, Louisiana ranks second in the country for its combined state and average local sales tax rates with a 9.52% rate. The state’s share of this percentage is 4.45%, which amounted to $3.56B in sales tax between July 1, 2018, and June 30, 2019, according to the Department of Revenue’s Annual Tax Collection Report published on March 19.
These are only two examples of the numerous taxes that will decrease significantly due to the COVID-19 crisis. This new kind of storm is daunting, and the state legislature and governor will have a difficult task to create a constitutionallyrequired balanced budget for the upcoming fiscal year. As we begin facing the challenge ahead, our government must keep a keen eye on the future and the reforms necessary to position Louisiana to face our future challenges, help our children succeed, and grow our economy.
It is no secret that Louisiana’s tax system is complex, with high rates and significant deductions for some industries and companies. I am certainly not advocating for higher taxes, but rather to simplify the tax code, flatten and lower rates, and eliminate excess itemized deductions. We must create a taxing and spending system that enables Louisiana to be competitive with other states in attracting better jobs, higher wages and more opportunities to our state – and we can. By enacting bold, nonpartisan changes to our tax code, such as lowering base rates for both businesses and individuals, eliminating excessive deductions, and simplifying the tax code, Louisiana can create the path for future success. The Pelican Institute, a nonpartisan think tank and leading voice for free markets, has developed a plan to help create a long-term solution. As the state looks to address spending to stabilize the budget for the next generation, we must call for full transparency of dollars that are being allocated, creating a long-term solution for unfunded liabilities, and begin to do away with the constitutional and statutory dedications that have tied the hands of the legislature.
The challenges ahead for Louisiana are significant. Bold, durable changes with transportation and logistics, medical research and manufacturing of medical equipment, and private sector militaryrelated jobs will enable our state to recover from this crisis and emerge stronger on the other side.
Thomas Pressly is a Shreveport native. He currently serves as Louisiana State Representative for District 6, which includes portions of Shreveport and Bossier City.