The looming fiscal cliff

The looming fiscal cliff

Balancing the state budget will become much more difficult starting next year when automatic tax cuts go into effect. While lawmakers have surplus and current-year excess dollars available in the upcoming budget cycle, revenues begin to decline in the 2025-26 fiscal year and are expected to flatline as state expenses go up. The Louisiana Illuminator’s Julie O’Donoghue reports

During the 2024-2025 fiscal year, the state is expected to be short $64.8 million. Then in the three subsequent budget cycles, Louisiana has projected deficits of $558.8 million, $614.1 million and $733.4 million respectively. Those large revenue shortfalls are mostly the result of tax cuts scheduled to happen automatically in 2025. The state sales tax will decrease 0.45%, and a number of sales tax exemptions for a variety of products and services will become active again. At that point, Landry and lawmakers will have to decide whether to forego the planned tax cuts or make reductions to state government spending.

The projected deficits are outlined in the “continuation budget” – which projects the cost of maintaining current government services in future years against the current revenue forecast. Legislators can choose to avoid the fiscal cliff by renewing or replacing the expiring revenue. 


Failed insurers flashed warning signs
The shady business practices of Louisiana’s failed insurers sent off – or should have sent off – alarm bells to state regulators. But companies that rushed into Louisiana’s risky insurance market were still allowed to operate despite signals they wouldn’t be able to pay claims when major storms hit. The Times Picayune | Baton Rouge Advocate’s Sam Karlin reports on the state’s lackadaisical approach to holding insurance companies accountable before disaster strikes. 

When [former Insurance Commissioner Jim] Donelon took the firm to court to put it in conservation, he said Lighthouse was losing $6.6 million every month and putting customers at risk. … But two months later, the state released Lighthouse from state supervision after company officials claimed they had lined up investment dollars that would only materialize if it wasn’t in conservation. Ida hit two weeks later. By March 2022, Donelon was back in court, taking over the company for good. It is now in liquidation. … When Donelon went to court the second time, in 2022, Lighthouse still hadn’t turned over its 2021 financials, state records show.


New rule to limit overdraft fees
The Biden administration announced a new proposal to limit the fees for overdrafting bank accounts. The new rule from the Consumer Financial Protection Bureau could cap overdraft fees to the necessary amount for banks to cover losses, or between $3 and $14. The Washington Post’s Tony Romm explains how these fees have become a financial windfall for banks and a burden on low-income Americans. 

When banks first offered overdraft services widely roughly 30 years ago, they pitched them to customers as a way to avoid the embarrassment and hassle of bounced checks. By 2019, though, banks had heavily monetized the practice, taking advantage of lax federal rules to rake in nearly $12 billion that year in fees, according to the CFPB. “There are families struggling, paycheck to paycheck, [that] are getting hammered, and it is a real tax on access to their deposit funds,” said Michael Calhoun, the president of the Center for Responsible Lending, which has advocated for such rules.


Training high schoolers to work in hospitals
Boston is looking to high schools to fill its dangerous shortage of health care workers. A $38 million grant from Bloomberg Philanthropies will allow students to earn college credits while receiving training in nursing, emergency medicine and other areas. The New York Times’ Jenna Russell explains the benefits for program participants and the larger community. 

More than 90 percent of students at the Kennedy Academy are Black or Hispanic; 85 percent are classified as “high needs,” meaning that they are from low income households, are multilingual English learners, or have disabilities. … Dr. Anne Klibanski, president and chief executive of Mass General Brigham, said the partnership will diversify the system’s work force, helping it more closely mirror the increasingly diverse city it serves. Filling vacant jobs will also help cut wait times for patients and ease burnout among overextended employees, she said.


Number of the Day
$558.8 million – Projected state budget deficit for the 2025-2026 fiscal year. The shortfall stems from the expiration of a 0.45% temporary state sales tax and other automatic tax cuts that will go into effect. (Source: Joint Legislative Committee on the Budget)