Planning for the next recession?

Planning for the next recession?

Louisiana’s economy - like the nation’s - is doing quite well at the moment. Unemployment and inflation are low and growth is strong. The state budget is finally stable after a decade of turmoil. But at some point in the next few years, the economic tide will turn and Louisiana (and the country) will find itself in a recession.

Number of the Day

$318,927,883.71 - Balance of Louisiana’s Budget Stabilization Fund, down from $853,719,306 in 2008-09. (Source: House Fiscal Division; Legislative Fiscal Office).

Louisiana’s economy – like the nation’s – is doing quite well at the moment. Unemployment and inflation are low and growth is strong. The state budget is finally stable after a decade of turmoil. But at some point in the next few years, the economic tide will turn and Louisiana (and the country) will find itself in a recession. And when that happens, the state may not be nearly as well-prepared as it should to deal with the fallout. Michael Grass of Route Fifty has more:

Nobody knows for sure exactly when the next recession will come or how bad it will be. But it’s a fairly safe assumption that any new governor taking office in 2019 will have to deal with more challenging economic conditions during their term. California Gov. Jerry Brown recently told reporters: “It’s going to happen. We maybe have two years if we are lucky.” … When the next economic recession takes hold, the impacts will be felt in different ways depending on the state and locality. While California and Georgia may be better positioned to deal with a downturn, there are other states that aren’t in as good of shape— state government rainy day funds in places like Connecticut, New Jersey and Kansas show they are less prepared.

The last time Louisiana was hit by recession, the state had $854 million in its rainy-day savings account to help defray the expenses. Today the balance is at $319 million, after the fund was tapped multiple times to deal with shortfalls. It also had a federal government that was willing to help cash-strapped states weather the storm by popping up critical safety-net programs such as Medicaid and SNAP. With Capitol Hill mostly gridlocked and the federal budget deficit spiking in the wake of President Trump’s tax cut, the federal government seems unlikely to help the way it has in previous downturns. Again, Route Fifty:

“There’s no question that the sheer amount that we’ve added to the debt, plus the pressure we’ve put on policy makers to add more to the debt, is going to limit our fiscal space and ability to respond to the next crisis, relative to what it otherwise would have been,” said Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget, a watchdog group. “Some of these limits may be economic,” he added. “Many of them may simply be political.” Dan White, director of public finance research at Moody’s Analytics, said when it comes to federal assistance to states in the next recession, “I don’t think they can count on getting as much as aid as they have in the past.” If this proves to be true, it will be even more important for states and local governments to plan and prepare for gloomier economic times.

In other words: Enjoy the budget stability, for this may be as good as it gets for a while.

 

What flood?
Two years after a historic flood devastated much of Baton Rouge and its suburbs, it appears that the lessons from that disaster have failed to sink in for local politicians and homebuilders. The Advocate’s Steve Hardy, David Mitchell and Caroline Grueskin report that subdivisions are still being built in flood-prone areas, with little or no disregard for the potential consequences.

Allowing the same type of construction in the flood plain is akin to an auto manufacturer who discovers a defect with one of their models but keeps rolling new cars off the assembly line without fixing the problem, said Willie Fontenot of the local Sierra Club chapter. “Things had been built without consideration of floodwaters,” Fontenot said, advocating for a building moratorium in the flood plain until there are new ordinances. … Some believe local officials have slid backward. After the flood, East Baton Rouge loosened its standards on when flooded property owners must elevate their houses if they aren’t in compliance with current requirements. The decision raised some eyebrows but was understood as a strategy to give succor to neighborhoods in crisis. Broderick Bagert, lead organizer of the faith-based nonprofit Together Baton Rouge, called the decision a Trojan horse. East Baton Rouge requires that buildings in the flood plain be built above the elevation of the record flood. When they changed the elevation requirements, the Metro Council also made an exception for the 2016 flood, which Bagert said he believes is a mistake. He said he wants new construction to be built to the level of the 2016 flood, reasoning that if a flood of that level happened before, it could happen again.

 

Ripping off American soldiers
One of the few areas where Republicans and Democrats have agreed in recent years is on the need to protect military members and their families from the harmful effects of predatory payday lending.  The Military Lending Act prohibits payday lenders from making loans to active-duty military members and their families – providing a model for the types of regulations that states should adopt for all consumers. As National Public Radio’s Chris Arnold reports, predatory lenders have been lobbying hard to undermine the law – and found a friendly ear in the Trump administration.

The rules to protect service members effectively block auto dealers from tacking on an extra product — such as overpriced gap insurance — and rolling it into their car loans. The industry has been lobbying to change that, and the White House appears to be sympathetic. The administration just sent the latest version of a proposal to the Defense Department, and documents show that it would give car dealers what they want. Peterson says the revised rules could also allow dealers to roll in all kinds of other add-on products. … Meanwhile, critics say that another change in the works would more broadly weaken the enforcement of the Military Lending Act. It involves Mick Mulvaney, the Trump administration’s acting director of the Consumer Financial Protection Bureau. Under Mulvaney, the bureau is planning to halt regular monitoring of payday lenders and other firms to see whether they are violating the act and cheating military personnel.

 

Trauma counseling in New Orleans
The New Orleans City Council took a small but important step last week to improve the availability of trauma counseling for the city’s youth, which falls woefully short of what’s needed in a city where poverty, violence and neglect can leave lifelong scars on children from disadvantaged backgrounds. The Nola.com/Times-Picayune editorial board:

The council unanimously passed a resolution calling for the New Orleans Children and Youth Planning Board to develop a comprehensive approach for prevention and treatment of violence-induced trauma in the city. The planning board’s work must be done by Aug. 1, 2019, and must include recommendations for new or expanded services for children exposed to violence, potential revenue to pay for those services and any changes needed in state law or city policy. … The City Council’s action grew out of a NOLA.com | Times-Picayune series published in June on “The Children of Central City,” which follows the lives of the 9- and 10-year-old A.L. Davis Park Panthers football team. These children have witnessed murders and lost family members to violence. Between 2003 and 2017, 28 former members of the Panthers team were killed.

 

Number of the Day
$318,927,883.71 – Balance of Louisiana’s Budget Stabilization Fund, down from $853,719,306 in 2008-09. (Source: House Fiscal Division; Legislative Fiscal Office).