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Cliff notes: The 2018 shortfall

Posted on November 8, 2017

The gap between projected revenue for the 2019 fiscal year and projected expenditures is more than $1.5 billion. Much of the impending massive shortfall – sometimes referred to as the fiscal cliff  – is due to the expiration of $1.38 billion of temporary revenue. However, with an improving economy, the decrease in overall revenue from fiscal year 2017 to 2018 is pegged at only $1.07 billion by the Legislative Fiscal Office.

Typically, increased revenues from a growing economy would be used to cover the other portion of the cliff – continuation costs. Accounting for continuation costs is standard and proper practice. It simply accounts for what’s needed to carry on all existing programs at the current level of service including the increased cost of services or materials due to inflation and workload increases. Prime examples include adjustments to the school funding formula – the Minimum Foundation Program – to cover increases in enrollment and higher costs due to inflation. This year, continuation costs add up to $448 million.

The reality is, though, that $1.38 billion in temporary revenue measures will expire on June 30, 2018. The overall shortfall is 15 percent of the entire state general fund budget. If reforms aren’t enacted, the gap is projected to grow to $1.74 billion by the 2021 fiscal year. Unless new revenues are generated to fill most or all of this gap, it will mean severe cuts to colleges and universities, doctors and hospitals, roads and bridges, police protection and other state services.

The largest source of expiring revenue is the temporary one-cent sales tax, which raises about $880 million per year. The temporary removal of certain exemptions from the sales tax brought in $227 million, while the reduction of corporate exclusions and deductions yielded $122 million. Other smaller changes add up to the remaining $150 million of the expiring revenue. 

The Legislature now has the task of figuring out how to fix the cliff and put Louisiana on a stable path for the future.

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