Lawmakers: Low oil prices a big hurdle

Line Dancing Classes (Larose)
December 30, 2008
Henrietta "Noon" Martinez Richard
January 1, 2009
Line Dancing Classes (Larose)
December 30, 2008
Henrietta "Noon" Martinez Richard
January 1, 2009

Until the last couple of months or so, Louisiana was fancying itself immune to the recession striking the rest of the country, but sub-$40-a-barrel oil has shown us we’re more like the other states than we believed.

Most Tri-parish area state legislators expressed deep concern about the impact on the state’s economy of low oil prices, which had reached as high as nearly $150 a barrel several months ago.


“We’re going to be strapped,”


said state Sen. Butch Gautreaux of Morgan City. “It’s difficult. People suffer.”

The state’s $30 billion annual budget is facing a shortfall of around $1 billion for the fis-


cal year ending in June 2009. The shortfall for the following fiscal year ending in June 2010 is projected to be in the $2 billion range, but much depends on what happens to the price of oil.


State revenue decreases around $12 million for every one-dollar drop in the average annual price per barrel of oil.

“2009 will be full of challenges, but it won’t be as painful as past (downturns),” Gautreaux said. “The impact is serious. If the price of oil comes up $20 to $25 a barrel, that will help.”


Though stressing he’s a realist and a pragmatist, Gautreaux guessed that oil would get back up to at least $65 a barrel in 2009. A number of legislators said oil prices need to be in the $60 to $80 range per barrel for the state’s economy to stabilize.


The oil and gas industry was optimistic about doing more exploration, Gautreaux said.

“I support drilling in the Gulf,” he said. “If oil companies continue investing in the Gulf, we benefit. The nation still needs energy. Hopefully we’ll see an increase in prices.”


“They (oil companies) don’t want to stop drilling and production,” he said. “They had record lease sales in the Gulf this year. I hope prices will not fall more so they’ll have a profit. If we stop building platforms, rigs, and supply boats, that’s bad.”


On the positive side, Gautreaux and other legislators said oil and gas revenue used to make up a much greater chunk of the state’s budget than it does today. Currently, oil and gas comprise around 17 percent of the budget.

“You remember the bumper stickers in the Houma area during the 1980s: ‘Give me one more oil boom and we won’t screw up,'” said state Sen. Reggie Dupre of Houma.


Partly because of post-Katrina and Rita federal dollars flowing into the state, Louisiana had around an $865 million surplus during fiscal year 2007-2008, but restrictions are tight on where surpluses can be spent.


“The biggest challenge for the governor (Bobby Jindal) is to balance that out,” Dupre said.

“For the surplus, he will have a tremendous amount of pressure,” he added.


By law, the state cannot run budget deficits, so the governor and the state Legislature have to make adjustments throughout the year.


The current budget was based on oil costing a little more than $80 a barrel. Legislators believed that was a conservative estimate at the time, Dupre said.

“I knew oil wouldn’t stay up, but I didn’t think it would drop so low, so fast,” he said. “In the 1980s it did the same thing. Oil prices fell.”


Gautreaux and Dupre have advocated specific uses for the recent budget surpluses. Gautreaux wanted more of the money to go toward paying down the state debt. Dupre, through his Windfall Highway, Infrastructure, and Protection (WHIP) Fund, pushed for the money to go into roads and coastal protection.


Both had their wishes at least partly satisfied this year.

Several hundred millions of dollars were dedicated from the surplus to coastal protection.


Gautreaux, who chairs the Senate Retirement Committee, said $60 million was spent from the surplus on retiring the debt in the state’s retirement system. The State Employees’ Retirement System and the Teachers’ Retirement System of Louisiana had been approximately a combined $9.7 billion in debt.


Gautreaux said the local economy has not shown much strain, at least yet.

“I’m in business, and business has been good in most sectors,” he said. “My wife’s in retail, and they’re saying, ‘Where’s the recession?’ There are long lines.”


Sales taxes in the state have decreased, however, Gautreaux said, resulting in people putting off buying bigger items. Pockets of north and central Louisiana have taken hits.


“But they’re still buying new clothes, going out to eat,” he said. “It may have slowed down some, but it’s not visible. At the stores on Martin Luther King Boulevard (in Houma), there are people standing in line. Where’s the recession?”

Northrop Grumman in Avondale and Bollinger Shipyards still have major contracts, Gautreaux said.


No new taxes

For his part, Gov. Bobby Jindal is determined not to raise taxes to deal with the deficit.

Sitting on the tax-writing House Ways and Means Committee, state Rep. Damon Baldone of Houma confirmed it.

“There have been no taxes mentioned. Do the cuts first,” Baldone said.

Jindal did just that in November, instituting a hiring freeze in 29 state departments and agencies that is expected to save the state $25 million. Some jobs in health care and public safety were exempted.

“I agreed with the hiring freeze,” Baldone said, “as long as they have some exceptions where they may need more people. Overall, the hiring freeze has good points, but there’s a downside too. It’s the executive branch, so it’s his (Jindal’s) right.”

The governor is limited to cutting 3 percent of department and agency budgets. The state Constitution mostly allows cuts to be made in health care and higher education.

“Maybe we can change that at a future convention,” said state Rep. Jerome Richard of Thibodaux.

The reductions likely to come in health care and higher education are “a problem,” Richard said.

“There’ll be hard times with the cuts,” he said.

Like Gautreaux, Richard is an advocate of saving budget surplus money for hard times when they come, except to pay down state debt.

Like all the rest of the house members this year, Richard voted in favor of repealing the Stelly Plan, which, beginning in 2002, had exchanged higher state income taxes for lower sales taxes.

“No one saw the shortfall in oil,” Richard said.

Baldone called the passage of the repeal “the will of the people.”

But any way the issue is sliced, the elimination of the Stelly Plan is costing the state around $350 million in revenue.

Adding to the lower revenue stream was a cut in business taxes, which the state Legislature passed this year at Jindal’s urging.

“Giving more tax breaks to business has an impact on the money we need to run state government,” Gautreaux said, emphasizing that “the state’s been very receptive to business.”

Other concerns

State Rep. Sam Jones of Franklin said the crisis in the U.S. auto industry has hurt business for the carbon black plants around Franklin. Carbon black is used to pigment and reinforce automobile tires.

He also said personal income tax revenue is down in the state.

Nevertheless, the economy in Louisiana is more diverse than in the recent past, said Jones, who attempted unsuccessfully to modify the effects of the repeal of the Stelly Plan.

“We’ll get a little dip in the state’s economy, but it won’t be like the rest of the country,” he said. “We’ll miss a beat, but not like the rest of the country. It will be more like a stutter. I’m still optimistic.”

State Rep. Jerry Gisclair of Larose expressed concern not only about the oil industry and the companies that service it, but the seafood industry as well, which has suffered from hurricanes and foreign competition.

“I don’t want to write it off, but the federal government is not doing enough,” he said.

Gisclair believes a special session of the state Legislature may need to be called this year to deal with the deficit, although the state Legislature will be able to address the matter in 2009’s fiscal-only session.

And like several other Tri-parish area state legislators, Gisclair has a positive view of the incoming Obama administration’s effect on the state’s economy.

President-elect Barack Obama has advocated a stimulus package of several hundred billion dollars for the country aimed at creating 2.5 million jobs.

In the 2008 presidential election, Obama’s opponent John McCain received Louisiana’s electoral votes.

Giscair put to rest any ideas of an Obama administration shunning the state because of the way it voted.

“I think he will help Louisiana,” Gisclair said. “Some of my colleagues, because of going for McCain, think we will be punished. But why would the president punish the state with our oil and gas industry, with the importance of what we have? He (Obama) will not punish the state because we didn’t vote for him.”