February 2, 2015

February 2, 2015

Oil and the state budget; Budget cuts have consequences; New payday loan regulations are coming; and TOPS remains off-limits

 

Oil and the state budget

There is no question that falling oil prices are wreaking havoc on the state budget. But an even bigger culprit in Louisiana’s massive budget gap is the $1 billion in one-time dollars that had to be replaced next year even if the price of oil had stayed the same. Still, as Mark Ballard reports in The Advocate, the latest oil bust made a bad situation even worse.

 

The drop in the price of oil from about $100 a barrel to about $50 in three months will make it difficult for Gov. Bobby Jindal and state legislators to craft the annual law that allows state government to fund public schools, pave roads, incarcerate criminals and tend to the roughly 1 million Louisiana residents too impoverished to provide their own health care. But the difficulty is no longer as direct as it was in the 1980s, the last time Louisiana lived through a similar abrupt and dramatic fall in the price of oil.

 

The New York Times’ Campbell Robertson picks up on the same theme, and notes that slumping prices have already started to affect Louisiana-based oilfield service companies that have clients around the country.

 

With its deep reserves of oil-field expertise, Louisiana provides much of the labor and tools in boom towns elsewhere, meaning that standstills in North Dakota are felt acutely in the oil city of Lafayette.“There are a lot of service companies working for firms all over the country,” said David E. Dismukes, the executive director at the Center for Energy Studies at Louisiana State University. “Those kinds of service sector jobs are probably going to be impacted pretty quickly by this.”

Among the first to feel a slump are the landmen, who negotiate leases and land rights for oil exploration. Several hundred people working for land companies in Lafayette were laid off in late December. The service firms, tool fabricators and truckers that make up the bulk of the work force are renegotiating their contracts with the oil companies, in some cases agreeing to steeply lower rates on the notion that poorly compensated work is better than no work at all.

 

Meanwhile, The AP’s Kevin McGill tallies up the ways oil prices already are affecting projects like the giant Sasol plant near Lake Charles (the construction of which has been delayed) and the legal wrangling over BP’s liability for the 2010 Deepwater Horizon oil spill.

 

On the witness stand was Richard Morrison, regional president and chairman of the board for BP Exploration and Production, often referred to in court as BPX&P, which is the BP subsidiary on the hook for the possible penalty. Lawyers for BP say the possible financial effect of a stiff penalty should be weighed in the judge’s decision — expected later this year — and that BPX&P cannot count on help from other BP entities in the paying of the penalty. “They have to consider the overall business environment that we’re going into,” Morrison said, saying he cannot compel parent company BP PLC to provide financial assistance. The parent company’s considerations include, he said, “the ability of not only BPX&P, but all of their businesses around the world to generate cash from their operations at oil prices less than 50 bucks a barrel.”

 

Budget cuts have consequences

When state budgets are cut it’s traditionally health care and higher education programs that take the biggest hits. But The Advocate reminds us that smaller programs in the state budget also are affected. Take historic Fort Pike, which was built in the early 19th century in the far eastern end of Orleans Parish and is now closed to visitors due to the state’s financial problems.

 

The closure is indefinite, said Jacques Berry, a spokesman for Lt. Gov. Jay Dardenne, who oversees the state park system. “Everyone’s taking cuts,” Berry said. The future outlook is not bright either: Further cuts are anticipated for next year, Berry said. The closure means that people will no longer be able to stand atop Fort Pike’s walls, gazing toward the Gulf of Mexico or Lake Pontchartrain, or wander through the low galleries that line the outer wall or the barracks in the center of the fort.

 

New payday loan regulations are coming

State policymakers may have rejected efforts to rein in predatory payday loans last year. But the federal Consumer Financial Protection Bureau is planning to unveil regulations in the coming days designed to protect borrowers from unscrupulous lenders that charge triple-digit annual interest rates for short-term loans.

 

The CFPB isn’t allowed under the law to cap interest rates, but it can deem industry practices unfair, deceptive or abusive to consumers. “Our research has found that what is supposed to be a short-term emergency loan can turn into a long-term and expensive debt trap,” said David Silberman, the bureau’s associate director for research, markets and regulation. The bureau found more than 80 percent of payday loans are rolled over or followed by another loan within 14 days; half of all payday loans are in a sequence at least 10 loans long. The agency is considering options that include establishing tighter rules to ensure a consumer has the ability to repay. That could mean requiring credit checks, placing caps on the number of times a borrower can draw credit or finding ways to encourage states or lenders to lower rates.

 

TOPS remains off-limits

While drastic measures are being considered to plug Louisiana’s budget gap, Nola.com reports that Gov. Bobby Jindal will not consider any changes to the TOPS scholarship program, which pays in-state college tuition for any Louisiana student who finishes high school with above-average grades and test scores. The program has grown into a popular middle-class entitlement, even as its costs have soared in recent years due to steadily rising tuition.

 

From 2003 to 2014, approximately 79 percent of TOPS students were white and 59 percent were female. The average TOPS recipient comes from a household with an income ranging from $70,000 to $99,000, well above the average income for a Louisiana family, according to a recent report.

 

Number of the Day

 

$46 billion – Size of the national payday loan industry (Source: Associated Press)