Sept. 15, 2015 12:25 AM


Price of Oil Getting Political in Louisiana

While oil prices, and predictions about where they’re going, don’t paint a pretty picture for the state of Louisiana, we’re unlikely to see a true and complete portrait of their effect on the current fiscal year budget until the next governor is sworn in.

Despite assessments from economists that the budgeted forecast for oil prices will not be met, and that other areas of the economy may not pick up the slack, the administration of Gov. Bobby Jindal insists no changes should be expected this calendar year — changes, of course, that would mean less money for an alreadyailing budget.

The difference of opinion comes at a time when Jindal is seeking to energize his presidential campaign in early caucus states. State lawmakers are also facing re-election on the fall ballot following a tumultuous session that is prompting opponents to throw mud their way in the form of votes they took on taxes and the budget.

In pure political terms, no one from the Capitol class could possibly benefit right now from mid-year budget cuts or even a forecast alteration.

That creates a scenario where the next governor could be saddled with another financial dilemma, which could include not only a needed change in the forecasted price of oil for the current budget year but also immediate spending reductions.

All of the gubernatorial candidates have promised a special session after taking offi ce to improve the tax code and overall budget situation. But Lt. Gov. Jay Dardenne is among the first to say he’ll need a quick special session right off the bat specifically for the 2015-16 budget.

“We’re going to need to address that fi rst,” he says of the current budget.

The three other major candidates agree a special session for the current budget year alone could possibility be needed.

Greg Albrecht, the state’s chief economist, says the 2015-16 budget forecast for oil being at roughly $62 a barrel and the actual price currently hovering around $40 doesn’t make for a great combination.

While the $62 fi gure refers only to the annual average price, the slide has been so consistent that it’s becoming difficult to imagine how the average is reached without a major rally.

“That forecast is unlikely to be made this year. No doubt,” Albrecht says. “What we need to know now is whether there are any offsets that will make up the difference, and we’re still trying to close the books right now on FY15.”

Louisiana loses $12 million for every $1 decrease in the annual average price of a barrel of oil.

The Revenue Estimating Conference, which is charged with determining how much money the state has to spend, meets next in September, and some members want the issue on the agenda for discussion.

LSU’s Dr. Jim Richardson, who sits on the REC, isn’t optimistic.

“Today I do not think there are enough offsets to make up the losses in oil prices,” he says. “No one expects it to bounce back. But again, we can always be surprised if offsets are found.”

Jonathan Walker, director of policy and communications for the Division of Administration, says there will indeed be offsets to make up for the sliding price of oil, starting with more taxes paid by businesses and others in relation to the bills passed by lawmakers this session.

“Some of the revenue measures may come in higher than expected,” he notes. “A lot of those estimates [from the session] were purposely conservative.”

That could mean the bills opposed by business this session, and passed by the Legislature, will have a higher price tag than what was initially thought.

“No one should be surprised about this,” insists Stephen Waguespack, president of the Louisiana Association of Business and Industry. “The only question is how high the final tax increase on employers will go. When you pass conference reports on tax bills that no one has read in the final moments of session, there are bound to be higher taxes than what was described to the public.”

That the tax bills passed this year could over-perform runs counter to the argument presented earlier this month when the new budget had to be cut by $4.6 million. At the time, it was suggested that the tax bills were not creating enough revenue yet because they had just been added to the books.

Walker says the response from consumers and the industrial sector to low gas prices will also serve as offsets to the declining per-barrel price of oil. As a result, he says the division does not expect a forecast change.

“We’re optimistic,” he adds. The matter is unlikely to be settled when the Revenue Estimating Conference meets in September. Walker says the state may still be in the process of closing the books on the most recent fiscal year at that time, which would provide an incomplete picture of potential offsets.

One of those offsets certainly will not be the volume of oil that is taxed. Crude oil production is off by nearly 17 percent for the fi rst half of this year compared to 2014 and by about half since 2012.

For more Louisiana political news, visit www.LaPolitics.com or follow Jeremy Alford on Twitter @LaPoliticsNow.

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