Easy financial road ahead for state...but...

By Dan Juneau

November 20, 2007 at 3:45 pm  | Mobile Reader | Pring this storyPrint 

Historically, Louisiana has often been directly opposite from where the nation is during economic cycles.

Part of that has been due to the major impact oil and gas prices have on the national and state economies. Higher energy prices generally mean more severance and royalty payments for Louisiana and more economic activity in the state which results in more payroll, income and sales tax collections. Conversely, higher oil and gas prices often act as a drag on the national economy by redirecting consumer spending away from recreational activities and consumer goods that help the economy expand.

Louisiana and much of the nation again appear to be moving in different directions from an economic standpoint, but this time there are more variables creating the chasm.
Nothing short of a deluge of dollars appears to be heading toward the state coffers in Baton Rouge. With the price of crude oil hovering near $100 per barrel and natural gas prices holding firm, mineral revenue coming to state government will likely continue to rise from already high levels. Record energy prices continue to make the energy sector of Louisiana’s economy flourish (but also adversely impact other sectors of our economy).

Congress just passed legislation that could deliver as much as $12 billion in hurricane relief, flood control and coastal erosion construction projects. Those dollars are going to have a positive effect as they ripple through our economy.

On the national level, the housing mortgage meltdown is having a significant impact on the stock market and the economies in states that were experiencing a real estate boom built on a “sub prime” bubble. The sharp drop of the dollar in relation to the value of other international currencies is also a ticking time bomb. If the nations which have absorbed our trillions spent in buying their exports decide to stop investing in our T-bills and securities, the huge noise we would hear would be the air going out of our economic balloon.

If these trends continue, what will it mean for Louisiana? Short term, things might look rosy, but it would be very unwise of us to spike the ball prematurely in our economic end zone.

For openers, it is reasonable to assume that the door to the bank vault in Washington is now closed to us. Once we receive the billions recently approved by Congress, they will consider the books closed regarding disaster relief for the Bayou State. We will be on our own. Secondly, if the national economy does begin to falter, prices start to fall and energy prices will follow the demand curve downward. That means our state officials could expect a significant downturn in the oil-and-gas dollars that have been flooding into state coffers.

For the next few years, the Road Home money and the taxes generated by the construction projects fueled by the hurricane recovery and the recently enacted Water Bill in Congress will make our state economy look flush. We have several choices regarding how to spend the money. The smartest choices would be to pay down debt, improve our transportation infrastructure and improve our business climate to help grow and attract jobs. The most dangerous choice would be to continue the spending binge that has increased our state budget to the $30 billion level.

We have a new governor and many new faces in our Legislature. They will have an easy time of it financially for their first two years in office. The economic choices they make during that time will determine how pleasant the balance of their time in office will be.




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