Cash flow problem could force the state to borrow to pay bills

Cash flow problem could force the state to borrow to pay bills

BATON ROUGE, LA (WVUE) - State government may have to borrow money in the near future to pay some of its bills, but a veteran state lawmaker who sits on the Revenue Estimating Conference does not think state employee pay would be affected.

"We're being told it's very serious. By July or August, we could have a situation where we would have to slow down on the payment of our invoices that come in to pay the state's obligations," said Senate President John Alario, R-Westwego.

Last week after the second special session of the year ended, Gov. John Bel Edwards spoke of the state's cash flow problem. He proposed $600 million in new revenue measures to fill holes in the state's budget year that kicks off July 1.

"We have a cash flow problem… And there is every possibility that we're going to have to take out a loan to pay regular, ordinary bills of the state of Louisiana to deal with that cash flow problem," Edwards said.

Alario and State Treasurer John Kennedy said the problem stems from budgetary decisions pre-dating 2016.

"We have in the last eight years had budget practices that went and swept the different funds that were there, which usually had balances, and we would keep rolling those over those over. Those have been depleted, so that's brought it down," Alario said.

"I think there is a cash flow problem because of, among other things, the drop in the price of oil and the fact that the last legislature spent a lot of the money in our savings account," Kennedy said.

Alario believes the state would be able to borrow money in the short-run to get through the money crunch.

"Generally you would do that on a short-term basis. Usually, even local banks are willing to do some of that and usually at a very good interest rate. It's just the fact that you have to go out and borrow it and repay it back, whenever you borrow you also have to repay, so we have to rely on some additional revenues coming in down road," Alario said.

And because corporate taxes that are paid to the state continue to lag, there's expected to be a $200 million deficit for the budget year that ends June 30.

"We've had many months with corporate income taxes that have brought it down. You've got to pay those tax refunds out, get that out, and tax collections haven't been where they thought they should be, so it's a combination of lots of things," said Alario.

"We had $810 million set aside in a savings account for health care of the elderly. Rather than reducing spending, the legislature took all the money out of that account and they spent it," said Kennedy.

Lawmakers raised millions of new revenues when they approved additional taxes in the two special session.

"Once that money starts coming in - and it already started - the cash flow problem will be fixed," said Kennedy.

Kennedy says $2.4 billion in taxes have been raised.

The Revenue Estimating Conference which sets the official revenue forecast could be later this week to review revenue estimates for the new taxes approved in the special session which ended last week.

Copyright 2016 WVUE. All rights reserved.