Ringing Registers

Minor spike in tax collections will be temporary

by Jeremy Alford, LaPolitics

Photo by Robin May

As the state grapples with mounting recovery expenses and looks to the federal government for financial assistance, economists are also expecting what could be a minor uptick in tax collections in the wake of the flooding in south Louisiana.

That spike in revenue, however, won’t be significant enough to address the immediate fiscal challenges being faced by the state. Future deficits are expected, and $1.5 billion in tax revenue is set to expire in 2018.

Hurricane Katrina offers somewhat of a guide, although the August flooding will not produce near the same amount of recovery spending. After Katrina made landfall in late August of 2005, the Revenue Estimating Conference met in October to lower expectations for incoming cash for the state, only to see a spike in sales tax and income tax collections soon after.

LSU economist and REC member Jim Richardson says the REC will gather next at its regularly-scheduled meeting some time in September, but he doesn’t see a need for a revision at this time.

“For Katrina, we didn’t know what the impact on business was going to be and we chose to be prudent,” Richardson says.

Today economists in Louisiana know that a bounce in tax collections can be expected in the months following a major flooding event.

“By October or November you will see numbers moving up,” says Richardson, adding that collections should be back to normal by the summer of 2017.

As people start to buy new sheetrock, carpeting and vehicles, sales tax collections will start to increase. As recovery work picks up, so will income tax collections.

To what extent these collections will increase and fill the state’s coffers will depend largely upon public programs and state and federal assistance. Hurricane Katrina caused a major spike because more of the impacted population had flood insurance and access to federal money.

In comparison, the recent flooding will have a smaller footprint, due largely to the number of residents without flood insurance.

Some areas will bounce back sooner than others, Richardson notes, like East Baton Rouge Parish.

“Overall what you will find is that East Baton Rouge will be back to normal fairly quickly,” he says. “You still have businesses functioning there, and more are coming back online. You can look at Livingston Parish and see there is barely any commerce there. They’re going to have to go to Baton Rouge or somewhere else to start rebuilding and to get what they need.”