States across the country find themselves flush with revenue as the economy bounces back from the pandemic and the remaining federal aid continues to course through statehouses. Sure enough, some state lawmakers are proposing to use this short-term windfall to make permanent cuts to revenues. But that will leave states struggling to provide basic services when the economy cools off and the federal pandemic relief peters out. The Center on Budget and Policy Priorities’ Wesley Tharpe urges lawmakers to protect or raise new revenue as economic uncertainty looms.
Recessions are especially harmful to states because state leaders, unlike their federal counterparts, must balance their budgets each year, even when revenues are down. And unless they offset these revenue drops with targeted tax hikes or by using other fiscal planning tools such as rainy day funds, they must make sizable cuts in essential services that could prompt teacher layoffs and growth in class sizes, less access to affordable health care or child care, deferred maintenance on roads and other vital infrastructure, and cutbacks to libraries, senior centers, and other local services.
While Louisiana’s short-term financial projections are bright, the Public Affairs Research Council’s Melinda Deslatte reminds legislators that the state faces a massive fiscal cliff in 2025.
It’s critical that lawmakers start planning now for next term’s budget gap. If they don’t intend to renew the expiring tax, they need to stop growing government spending on new, ongoing programs and start finding a way to account for the tax dollars that will be lost. Waiting until the fiscal cliff hits isn’t a plan.
Legislators skeptical of Donelon’s insurance fix
There’s still uncertainty on whether the Legislature will convene for a special session in February to address the state’s homeowners insurance crisis. But several lawmakers said they aren’t willing to go along with Insurance Commissioner Jim Donelon’s plan to create a new incentive fund to lure insurers into the state’s risky market, whether it be in a special session or the regular session that begins in April. The Louisiana Illuminator’s Julie O’Donoghue reports:
“I think Commissioner Donelon thinks that people down here are clamoring for a bunch of sh—- insurance companies like we had before and we’re not,” said [House Speaker Pro Tempore Tanner] Magee, who represents communities in Terrebonne Parish affected by Hurricane Ida. “We want good insurance companies that are actually going to be partners here and pay claims and do all the things they were supposed to do.” Magee suggested the money might have more immediate effect if it was used directly to lower premiums in Louisiana Citizens, where people have to get insurance coverage if they can’t find it on the private market.
The Advocate editorial staff wonders whether using tax dollars to pay private insurers to take over policies now covered by the state-run insurer of last resort is a good long-term plan.
Will that work? Maybe in the short term, but the rapidly rising costs of insurance premiums — Citizens, or private insurers, or U.S. government flood insurance — is a serious economic blow to Louisiana. … But ultimately, can taxpayer subsidies from a medium-sized state keep up? That’s the kind of long-term issue that may be addressed by stronger standards for construction and flood prevention, but that’s also costly for builders and thus purchasers of their products. New and different ideas should be on the table as well. We urge everyone involved in the special session to give some thought to this serious concern going forward, not just in today’s challenging market.
Leaders kept in dark on Avondale shipyard deal
Last week lawmakers heard how the developer of a controversial grain elevator in the historically Black community of Wallace cut a deal with the Port of South Louisiana to avoid an estimated $209 million in property taxes that could support education and other vital services in St. John the Baptist Parish. Now, there’s controversy surrounding the port’s agreement to buy the former Avondale shipyard for nearly $450 million without consulting key leaders, including Gov. John Bel Edwards. The Advocate’s Anthony McAuley and Sam Karlin report:
The deal is contingent on approval of hundreds of millions of dollars in state-backed bonds, and would represent a major expansion of the port, extending its reach beyond St. Charles, St. James and St. John the Baptist parishes into Jefferson Parish, which is within the Port of New Orleans’ jurisdiction. But port officials have released little information publicly to justify the $445 million purchase from private port operator T. Parker Host, which bought the site four years ago for $60 million. So far, the port has declined to provide any independent assessments of the site or how it determined what operating the port would be worth.
Former state Sen. Conrad Appel of Metairie, who served on the Port of New Orleans Dock Board, writes in The Times-Picayune that it’s time for South Louisiana ports to stop competing and start cooperating.
The Port Authority of New York and New Jersey crosses state lines and oversees one of the world’s busiest ports with coordinated air, rail, sea and land connections. Why can’t Louisiana have just one port authority that coordinates policies, logistics and strategies within our state based on single master plan? That’s a long-range solution, but we must begin that process in earnest.
Feds eye wages increases effect on inflation
Paychecks have increased over the last year as employers had to compete to attract and retain workers. But these wage increases could be driving inflation as employers pass on the extra costs onto consumers. Vox’s Madeleine Ngo explains how the Federal Reserve is monitoring wage increases in its effort to slow inflation.
A slowdown in pay gains could help ease inflation because businesses’ operating costs wouldn’t be as high, meaning that employers might not feel as much of a need to raise consumer prices or be more likely to offset costs in other ways, said Kathy Bostjancic, the chief economist at Nationwide. That’s especially true for businesses that offer services, since worker compensation is a major cost. Slower wage growth could also cool consumer demand since workers would not have as much income to spend. Bostjancic said she expected to see wage growth gradually slow throughout the year as the demand for workers falls, although she noted there are some reasons to believe that wage gains could be persistent.
Number of the Day
5,167 – Number of state employees that will have to find a new pharmacy because of Louisiana’s new $2 billion pharmacy contract. (Louisiana Legislative Auditor via The Advocate)