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Oil Prices Renew State Budget Worries

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Sue Lincoln
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Oil prices have dropped again, closing just above 50-dollars per barrel all last week. What does that mean for Louisiana’s precariously balanced budget?

“Obviously, if oil prices stay in the low to mid-50s, relative to our 60, 62 dollar price, at some point we’ll have to, you know, reconsider that forecast price,” Legislative fiscal analyst Greg Albrecht says.

Albrecht explains each one dollar drop in the yearly average price of oil costs Louisiana $11-million in revenue.

“Obviously, if you have a persistent lower oil price, several dollars below your forecast, that’s something we would start worrying about after a few more weeks.”

The Legislative Fiscal Office is watching the oil price closely, as the proposed nuclear treaty with Iran could result in lifting economic sanctions against that country, increasing the supply of oil and further decreasing oil prices. Albrecht says there’s no need to panic – yet.

“We can last six months or more, because we have more than just mineral revenue.”

Yet Moody’s issued a warning about oil, and states that rely on it, last week. That report noted, “Louisiana has limited financial reserves and little budgetary flexibility.”

Albrecht says it’s not as bad as all that.

“We had pretty good sales tax collections in the year we just finished, and that’ll bleed over into the year we just started a little bit. Income tax has been on par with the forecasts, so we’re not worried about that. And those two are very big numbers.”

State Treasurer John Kennedy just released the revenue report for the fiscal year that ended June 30th, noting that sales tax was up 2 percent, and personal income tax up 3 percent, at just under $3-billion each. But corporate taxes were down 20 percent, to less than half a billion dollars.

Severance taxes, which include the bulk of the state’s oil revenue, were down 11 percent in the just-ended fiscal year.

The Revenue Estimating Conference, which makes and adjusts the official revenue forecast for the state of Louisiana, doesn’t usually meet again until October or November.

“Typically we’re in the fall when we’re looking at the overall revenue mix and gotten at least a quarter of the way through the fiscal year. So, it might be that long before we make any big changes,” Albrecht says.

Unless, of course, oil prices remain this low -- or drop further.