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Oil Price Drop Adds To State’s Fiscal Woes

December 20, 1987

BATON ROUGE, La. (AP) _ Louisiana state government is losing millions of dollars because of falling oil prices and could face financial disaster if prices continue dropping, officials warn.

A deep recesssion that grabbed the state when oil prices collapsed nearly three years ago already had officials scrambling to find ways to cut the budget. Louisiana has the nation’s highest jobless rate.

″I was already facing a $450 million (state budget) deficit,″ said interim Commissioner of Administration Brian Kendrick. ″I now face a $500 million to $550 million deficit. I’m not doing anything differently, but it certainly adds urgency to our situation.″

Kendrick, who is serving in the administration of Gov. Edwin Edwards at the request of Gov.-elect Buddy Roemer, is trying to find budget cuts and boost efforts to find additional tax money through business audits.

At Roemer’s request, Edwards recently chopped $40 million in spending and put a freeze on state hiring, travel and equipment purchases.

The governor-elect, who takes office March 14, has said he will call a special legislative session to deal with short-term budget measures on March 20.

Even before the price of oil dropped nearly $2 a barrel last week, Roemer said the state could run out of money and be unable to pay its routine operating expenses by February or March.

The $5.9 billion state budget is running short of money because of optimistic predictions that pegged revenue based on a price of $20 to $21 per barrel.

The price of Louisiana sweet crude has averaged about $18.75 per barrel since the fiscal year began on July 1, according to state Senate economist Johnny Rombach. Last week it dipped below $17 per barrel.

For each $1 drop in oil prices, Louisiana loses $30 million to $35 million in severance taxes and royalties for production on state-owned land and an additional $10 million to $15 million in other business and income taxes, Kendrick said.

Another price collapse would be devastating, Kendrick said.

″We would be faced with a total shutdown of government services,″ he said. ″It would be a disaster.″

A steady decline in oil prices could gut the state’s modest economic recovery of the past year, said Kay Jackson, secretary of the state Department of Commerce.

After topping out at 14.9 percent in January, Louisiana’s unemployment rate stood at 10.1 percent in October.

″If that is the case, then obviously the impact upon Louisiana’s economy just as it is showing signs of recovery would be devastating,″ she said.

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