Thursday, 12 February 2015 21:51

Should Jindal blame oil price falls for Louisiana's $1.6B budget crises

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oilpricesIs Governor Bobby Jindal wrongfully being blasted for the astounding  $1.6 B looming budget deficit Louisiana is facing?  Or is he and the State of Louisiana’s unfortunate mere victims to the cascading price of crude oil?

 Lately, Jindal has been plummeted over this budget mess since he has been so prominent on national political stage.  The media giants such as Politico, NYTimes and others have questioned his fiscal record, given the enormous upcoming deficit.   Jindal, who hails himself as an expert in healthcare and education has offered national plans while the already-hobbling Louisiana higher education and healthcare systems find its own funding environment in a condition that could cripple the most healthy.

However, Jindal, who has been fast to publicly call out Obama  claiming the president refuses to take responsivity for current national conditions, has put up a stern defense.   Instead, while informally running for Obama’s job, the Louisiana governor has been quick to claim that the “vast majority” of the budget shortfall is due to a substantial gap suddenly appearing at the bottom of the world crude oil price bucket.

For example, on Wednesday, while at an economic development event, Jindal fielded media questions focusing upon his record, the budget and oil impact.

Minutes into the must-listen-to press conference, Gov. Jindal responded to a reporter’s question about the budget deficit.  Here is the transcript of the relevant portion.  The complete audio can be found here


JINDAL: I think that everybody understands that the deep decline in the price of oil certainly presents challenges to the state but we can respond to those challenges without raising taxes while still continuing to help protect higher education and healthcare and while continuing to grow our private sector economy.

JULIE: so before oil prices tanked we were still facing a billion-dollar budget deficit--what do you attribute the billion-dollar budget deficit to before oil prices tanked

JINDALI don't think... We look at the continuation budget, we're not good to see, when you, when we present the budget February 27, it's not going to be $1 billion in reductions. I know folks from government like to say that if your budget doesn't grow as quickly as they would like-- that that's a reduction, when you actually look at the reductions, you will see that it is largely tied to the decline in oil prices, the loss of revenues due to that as well as some mandatory cost increases and so every year the continuation budget people talk about the continuation budget that's not the level of cuts that you're going to, that were having to face--due, uh, largely due to the decline in the price of oil, look, the level of cuts were having to deal with are in the hundreds of millions of dollars-- that's significant but again, that's largely due to the decline in the price of oil. There's some other increases like the MFP and TOPS and the benefit increases

JULIE: we can argue what the number is but there was a deficit before oil prices tanked and I want to know what you think caused it

JINDAL: no but I'm telling you, it is a mistake to look at the continuation budget and to say well that's a deficit.  The continuation budget every year assumes you're going to grow government spending--we don't start every year with that assumption, we don't assume.  We don't assume that every budget simply has to grow.  We think you can be more efficient, we don't think, there's no private company or household that runs its budget that way, and so there's not going to be $1.6 billion less for example, in terms of actual spending cuts, when we propose our budget. The shortfall we're looking at is very much largely due to the decline in oil prices and were going to have, we're going to have a balanced budget that has efficiencies and will be balanced, will be balanced-- while at the same time, doing everything we can to protect higher education and healthcare. 



From all indications, Jindal appears to be saying the roughly $1.6B “continuing budget”  deficit is based upon anticipated increases in expenditures that can be eliminated by more efficiencies.   The difference between the continuing budget deficit reduced by those efficiencies and reduction in other budget growth, would leave the state with a real deficit.  That real deficit number according to the “World of Jindal” has “largely” been caused by the free-falling crude oil prices.

Julie, the reporter during the press conference  probed further into this question which has recently resonated in the national media:


“In interviews with both publications, Jindal sought to blame the recent drop in oil prices for the "vast majority" of the budget shortfall, but the national reporters were skeptical of the governor's explanation. They quoted local Louisiana economists, policy experts and legislators who disagreed with the governor and said the state had a billion-dollar budget hole even before Louisiana oil prices used to tank.”



As reported in the NY Times, As Jindal’s G.O.P. Profile Grows, So Do Louisiana’s Budget Woes: 


In a telephone interview, Mr. Jindal defended his record, attributing “the vast majority” of the shortfall to the downturn in oil prices and insisting that a shrunken state government was the goal, not an unfortunate side effect.

Louisiana’s budget shortfall is projected to reach $1.6 billion next year and to remain in that ballpark for a while. The downturn in oil prices has undoubtedly worsened the problem, forcing midyear cuts to the current budget. But economists, policy experts and lawmakers of both parties, pointing out that next year’sprojected shortfallwas well over a billion dollars even when oil prices were riding high, turn to a different culprit: the fiscal policy pushed by the Jindal administration and backed by the State Legislature.”


So is Jindal talking a strange form of Louisiana-budget language that only he and his administration can comprehend?  Or, have the precise questions not yet been asked of the Governor to understand his own appreciation of Louisiana budgetary history?  Or, do we already know the answer?


Our query goes back to last summer.   

The recent oil bust began in June 2014.

Throughout the 2014 legislative session and thereafter, there was much talk about the enormous budget deficit Jindal would be facing in his last year in office, 2015. 

As early as June 9th, 2014, reporter Christopher Tidmore wrote:

               State lawmakers passed a $24.6 billion state operating budget which relies on ephemeral funds, likely unavailable next year. The state of Louisiana is effectively $1 billion in deficit, so short is the Treasury of the revenues appropriated for the fiscal year beginning July 1, 2015. In percentage terms, that is a deficit figure rivaling Washington’s profligacy.

Two months later, on August 14, 2014, a joint legislative budget committee met to look at how bad the deficit might be.  On that day, oil prices were at roughly $97 per barrel had dropped only $10 per barrel from the roughly $107 per barrel high from mid-June.

At that committee hearing the state,   August  14, 2014 began to look at a whopping $1.2B deficit when oil prices were at $97 per barrel having declined only ten dollars per barrel from a year high of $107 of  June 15, 2014.  Looking back:


Click on image

               Louisiana state lawmakers got their first glimpse Thursday of next year’s budget gap that they’ll have to close, and it’s another hefty shortfall: $1.2 billion.

The grim news, delivered to the joint legislative budget committee, barely raised eyebrows at the committee hearing, after more than six years of such disappointing financial forecasts.

The shortfall is projected for the 2015-16 fiscal year that begins July 1. Gov. Bobby Jindal and lawmakers will decide in next year’s legislative session how to address the hole.

Next year’s state spending plan could be off by as much as $1.2 billion, but the projected shortfall was only briefly discussed during a meeting at the State Capitol on Thursday.

Gov. Bobby Jindal’s administration says Louisiana has plenty of time to reap savings and bring in more revenue to fill in the gap


Over the past seven days when Jindal’s budget has been in such media scrutiny, crude oil has ranged from $49 to $53 per barrel, a drop of roughly $46 per barrel since the August 14 meeting when Louisiana legislators were looking at the $1.2 billion dollar deficit.  


So, let’s look at the numbers.

Jindal seems to argue that the continuing budget should be reduced because it includes annual increases in expenses that can be eliminated by (more) efficiencies.   This year is no different.  Every year, and virtually every mid-year emergency massive budget shortfall is remedied in part, by these suddenly discovered efficiencies (which raises the question why couldn’t these inefficiencies have been eliminated so many forced-budget cuts ago, and just why have they been allowed to go untouched by the budget knife, so many emergencies in the past?).

Nonetheless, assuming the government growth can be cut by these efficiencies and other new-found ways,  the remaining budget deficit must be the real budget hole that Jindal alludes to, which the governor  claims the “vast majority” of the dollar gap directly caused by the unfortunate turn of events, that nasty oil drop.

Assuming even further that we have been victimized by recent external events, there surely is no question that Louisiana’s own “oil” well has totally run dry over the now-seven years of the Jindal administration’s budgetary practices. 

As the non-partisan government watch-dog organization, Louisiana Affairs Research Council (PAR) said in its June 6, 2014 commentary:


Through a nearly $1 billion combination2 of trust fund depletion, a tax amnesty program, a debt defeasance maneuver, a lawsuit settlement and fund sweeps, the Legislature and the administration managed to find enough revenue to sustain the state’s spending plan for the fiscal year that begins July 1. The great majority of that money will be unavailable for the fiscal year 2016 budget-balancing act next spring.

Although there are sure to be fresh windfalls and sources of one-time money next year, there are likely to be new expenses lurking also. The overall gap for fiscal year 2016, considering the various pluses and minuses that will occur, is not yet known. What we do know is that the state is not following sound fiscal practices with respect to balancing ongoing revenue with ongoing expenses. In particular, the state has formed a habit of creating one-time money to plug budget holes. One-time money can occur for many justifiable reasons, such as when the state gets a lawsuit settlement. But when the government manufactures those opportunities by borrowing from the future and for no other purpose except to raise money for the operating budget, their use does long-term damage to the state fiscal outlook.


Which all means that Louisiana somehow will stumble out of a budget crises that was clearly identified way before oil prices has shook our bedrock of security.   How we fill this long-expected fiscal disaster canyon without being able to resort and further deplete more one-time money pots,  will be as fun to watch as a barrel of presidential-ambitions monkey-shine.





Stephen Sabludowsky | This email address is being protected from spambots. You need JavaScript enabled to view it.

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