1 Current State of the Economy, and State Government Budget Outlook Greg Albrecht Chief Economist LA Legislative Fiscal Office Presentation To Association

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Current State of the Economy, andState Government Budget Outlook

Greg AlbrechtChief Economist

LA Legislative Fiscal Office

Presentation ToAssociation of Government Accountants

Past PresidentsSeptember 18, 2014

Source: LA Legislative Fiscal Office, U.S Dept of Labor, Bureau of Labor Statistics data2

The LA U rate < U.S. U rate & South U rate is entirely a post Katrina/Rita phenomenon.

July 2014U.S. 6.2%South 6.0%LA 5.4%


Headline unemp rate is not as reliable an indicator of the state of the labor market or economy in general as it used to be.

U rate = 100/1000 = 10%U rate = 90/990 = 9.1% b/c LFC dropped, not b/c # employed rose

Source: Federal Reserve Bank of St. Louis FRED database, U.S Dept of Labor, Bureau of Labor Statistics data 4

Broader measures of unemp remain elevated. Roughly 25% - 40% for U.S.Roughly 20% -30% for LA


LA has not experienced outsized employ growth since the recovery from the 08/09 recession began.


LA has experienced outsized slower employ growth once we account for the policy decisions to reduced state government employment. Local & federal government emp in the state has declined, as well.


Start at Jan’08 (rather than Feb’10), the story is the same.If you fall only half as far but then grow as fast, you climb back out in half the time.You still didn’t perform any better.

Source: LA Legislative Fiscal Office, Federal Reserve Bank of Philadelphia data8

Composite of 4 major economic variables: (1) payroll employment, (2) average hours worked in manufacturing, (3) unemployment rate, (4) real wage & salary disbursements.Better LA unemp rate not enough to offset apparent relative weakness in other indicators.

Source: LA Legislative Fiscal Office, U.S. Dept of Commerce, Bureau of Economic Analysis data9

How do we compare in GDP data? (I really am trying, aren’t I?)

(I)

(II)

(III)

(I)

(II)

(III)

Source: Baton Rouge Sunday Advocate, August 10, 201410

If the boom is not here yet, maybe it’s coming in the future.Here are projections over the 10-years of 2012 – 2022, sourced to the La Workforce Commission (state dept of labor), La Dept of Economic Dev, and the LSU Division of Econ Dev.

1.3% employment growth per year.


Here is what employment growth has been doing since the recovery began, from Feb 2010:Total 1.2% per yearPrivate 1.97% per year

Source: Baton Rouge Advocate, September 2, 2014, “Industry Driving Sales Tax Take”12

Actually, the boom is probably already here.Recent newspaper article about Ascension Parish industrial building activity. Annual local sales tax growth:2010 to 2011 5.8%2011 to 2012 12.1%2012 to 2013 24.5%2013 to 2014 22.3% if first half’14 annualizedTheir doing the right thing though, in comparing first half’14 to first half’13 for only 3.2% growth

Statewide, though, this kind of sales tax growth is not happening. Annual state sales tax growth FYs):2010 to 2011 10.7% from FY10 trough2011 to 2012 -0.7%2012 to 2013 0.0%2013 to 2014 0.5%

Source: Source: LA Legislative Fiscal Office13

State tax base has been permanently reduced below it’s pre-storm path, and looks like it’s growth potential has been reduced, as well. FY14 projected growth is 0.8%, and we may no make that.

Source: LA Division of Administration14

The state general fund portion of the revenue projection is combined here with the Continuation Budget projection; the SGF dollar equivalent of all funding issues. The difference is the Continuation Budget deficit projection.

This is the $1.2B deficit projection for FY16

Source: LA Legislative Fiscal Office15

The Continuation Budget process seems guaranteed to generate deficit projections, since it translates all funding issues into a state general fund equivalent dollar requirement. We will not resolve all funding issues with SGF dollars.

How do we fill these funding gaps?Easy cuts first: don’t fund inflation, merits, MFP formula growth.

Then use ad hoc resourcesSweep known unemcumbered balances from a long list of dedicated funds (from millions of dollars to double-digit dollars; some of these funds multiple years in a row).

Sweep guessed at unemcumbered balances from a long list of dedicated funds.

Sell stuff (buildings, parking lots, land etc).

Raise college tuition and use dollars elsewhere in the budget.

Cut health insurance premiums and use employer contribution savings elsewhere in the budget.

Take dollars from various state sponsored, but off-budget entities: LA Housing Corp (2 of these?), state self-insurance fund (not health).

Take dollars from local entities like N.O. Convention Center (maybe replace with state capital outlay dollars – bond proceeds in the operating budget?).

Budget anticipated receipts from legal settlements (we seem to have a lot of pharmaceutical settlements – is the AG our trial lawyer?).

Make N.O. local entities pay debt service on bonds we sold for them after Katrina (think we were expected to forgive this – that deal is off).

Refinance debt, front-load savings, use in budget, use exising funding elsewhere in the budget (TOPS, G.O.debt).

Offer tax amnesties multiple years in a row (4 years ago, last fall, this fall, next fall…).


The LFO table of $991M of ad hoc resources used in the FY15 budget that is bulk of the $1.2B gap for FY16

$650M+; 2:1 match

SGF $16.85 $40M


Some of the ad hoc resources detail behind portions of the previous slide


From the Baton rouge Advocate (online) of August 15, 2014. This was the day after the JLCB heard the first official presentation of the $1.2B projected budget deficit for the next fiscal year (FY15/16). Artilce titled “State to Face $1.2B Budget Shortfall”.

Only $450 million to go!

Documents

1 Current State of the Economy, and State Government Budget Outlook Greg Albrecht Chief Economist LA Legislative Fiscal Office Presentation To Association