Government

Louisiana’s new governor faces major budgetary hurdles

Patty Labadie

Patty Labadie

Louisiana’s new governor, John Bel Edwards, has offered his budgetary proposal as the state faces what the governor calls the biggest financial troubles it has ever seen.

 

As reported by Reuters, the state is operating in a $750 million deficit for its current fiscal year, but that number is expect to grow to $1.9 billion by the beginning of the next fiscal year in July. Much of the shortfall has been attributed to a decline in oil prices and tax revenues.

 

The governor has proposed raising $216 million by increasing the state sales tax by one penny to 5 cents. The increase would not affect the sale of groceries, prescription drugs or residential utilities. The proposal also calls for reducing discretionary funding, pulling $128 from the reserve fund and spending $200 million paid to the state by BP as reimbursement for cleanup efforts following the Deepwater Horizon oil spill in 2010. However, all these measures combined will not cover the deficit, Reuters noted.

 

“The state is operating in a $750 million deficit for its current fiscal year.”

In a press announcement, Edwards, who was sworn into office on Jan. 11, said the state has to make difficult decisions to overcome its financial shortcomings.

 

“This is not the budget plan I wanted to bring in my second week in office, but these problems are bigger than our state has ever seen,” Edwards said. “Raising taxes would not be my first, second or even third option when seeking to fill the state’s budget shortfall, but when the facts change, so do your options.”

Cutting tax credits may hurt economic development

As The Advocate reported, the Edwards administration is also pushing for the elimination or scaling back of several tax credits as part of a move to bolster the state’s revenue, though this measure would require a two-thirds approval from each chamber of the legislature.

 

The Baton Rouge Business Report noted that many historic preservationists are concerned one tax credit potentially on the chopping block is the state’s historic tax credit program. These tax credits allow developers to write off a percentage of their qualifying expenses when restoring historic properties for commercial or residential use in downtown districts and cultural areas.

 

The program has led to increased economic development of older structures in cities including Baton Rouge, Lake Charles and New Orleans. According to Business Report, the program has led to $3 in new tax revenue for every $1 in credit. Speaking with the publication, Baton Rouge Downtown Development District Executive Director Davis Rhorer argued that the city’s major revitalization projects would never have been financed by developers if it weren’t for the tax credit. “In the case of downtown Baton Rouge, we can show the effectiveness of the (Historic Tax Credits) program,” Rhorer told the publication.

 

“Tax credits led to an increase in tourism in post-Katrina New Orleans.”

According to Next City, the tax credits have also had a positive impact on post-Katrina New Orleans. The city’s downtown district has seen an increase in tourism, the opening of new bars, restaurants and hotels, and the restoration of historic theaters and museums. The state’s residential historic preservation tax credit has also been used to rehabilitate older structures and create mixed-income, walkable communities that Next City called an exemplary model of an idealized American Main Street. The publication reported New Orleans saw an increase of almost $1 billion in residential development through these tax breaks. As of 2014, 1,400 new apartment units were added to the downtown area at market-rate, moderate-income and workforce-level pricing.

 

Speaking with Business Report, developer Dyke Nelson said projects such as the supermarket he brought to a historic structure in downtown Baton Rouge would not have been possible without the tax credit. Without these sorts of amenities, these areas of the city would not be as livable, he noted.

 

“There would not be a grocery store in downtown Baton Rouge if not for the tax credits,” Nelson says. “The difference between having the Historic Tax Credits and not is the difference between the project happening or not.”

How Questica can help

State lawmakers looking to overcome budgetary shortfalls face difficult challenges. Strengthening state revenue may require unpopular actions such as raising taxes, which may also have a detrimental impact of the lives of the state’s residents. On the other hand, eliminating programs that drive the state’s social or economic welfare can have cascading effects on the state’s economy.

 

With Questica’s budgeting software, governments of any size can utilize a flexible, web-based platform to accurately forecast multiple budget scenarios over an unlimited number of years. This streamlined alternative to inefficient spreadsheets assists governments in evaluating the future impact of their budgetary decisions. Questica’s unique tools also allow for increased communication between different departments and more transparency for concerned members of the public.

 

Public sector entities seeking insight into overcoming budgetary shortfalls should contact Questica to learn how flexible software can contribute to knowledgeable decision-making and more accurate forecasting to provide for improved long-term economic visibility and certainty.

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