'King Oil' Is Cruel Jester in Louisiana

OIL, once the king of Louisiana and the driving force behind all of the state's economic configurations, is today a declining industry whose loss is being felt throughout Louisiana's political and business community. "The old oil-driven economy just isn't what it used to be," says David Hoppenstedt, an economist with the Louisiana Department of Planning and the Budget. "It used to be that we could always rely upon oil here for anything to solve any of our problems. But those days are long gone, and for a lot of people it has been a very rude awakening."

Because every one-dollar rise per barrel in the price of Louisiana oil on the international market can mean up to $60 million in revenue for the state, that rude awakening was never more apparent than during the early days of the Persian Gulf war. The price of Louisiana oil shot up in just hours from $32 a barrel to more than $41 a barrel, as worries that Iraqi bombers would hit Saudi Arabian oil fields intensified.

But as soon as the functional operation of the oil fields was assured, Louisiana oil dropped precipitously, down to less than $22 a barrel.

Last week the price of Louisiana crude stood at less than $21 a barrel.

"The big jump in oil with the Persian Gulf war, and how excited everyone got over that, shows how much we keep hoping that oil will somehow come back and save our state," says Emogene Kleiner, vice president of the nonpartisan Public Affairs Research Council (PAR). "But it's not to be, and because of that we end up in a state of panic, desperately trying to get money elsewhere."

The most recent "state of panic" in Louisiana saw legislators voting for more than $300 million in state sales taxes in an attempt to cut down a budget deficit estimated at almost that same amount.

The problem for many legislators who gave final approval to the bill, however, is that it marks the fifth year in a row that lawmakers were asked to suspend previously imposed state sales-tax exemptions in order to make up for an ever-widening budget deficit. "It's an absolutely insane way to run a government," said PAR's Ms. Kleiner.

This month PAR released a study criticizing the state for failing to move beyond its oil dependence, noting: "The inherent instability of the state's tax structure has been compounded by the cyclical impact of election-year tax policies.

"In each of the last three [gubernatorial] terms, nonrecurring sources were used to prop up spending for the last year of an administration...."

State officials say that until Louisiana moves in the direction of revising its tax structure, the need for oil revenue will continue. The "homestead exemption," which provides that homeowners whose dwellings are valued at less than $75,000 are not required to pay any property tax, has a major effect on local revenues.

"The problem, though, is complicated by the fact that not only do we get less money from oil today in revenues per barrel, but that there is less oil being drilled in Louisiana, period," says Mr. Hoppenstedt. "Louisiana is a mature producing state; oil production here peaked two decades ago. At the very best the revenue from oil will remain constant, but it's not likely to increase."

Gov. Buddy Roemer, who recently switched from the Democratic to the Republican Party, says that relying on a sales tax to try to compensate for the loss of oil money is one of the few options currently available for balancing the budget: "I realize that renewing the temporary sales tax year after year is not in Louisiana's long-term interest," he said. "It beat the alternatives in the short term, but in the long run we need a tax code that's growth-oriented without raising taxes."

Noting that the only alternative to raising taxes is to drastically cut the state's budget, making it what some legislators call a "doomsday budget," Rep. Carl Crane (R) of Baton Rouge, who voted for the sales tax, noted: "If we have to put into place the magnitude of the cuts that are being suggested, that's far worse than voting for a sales tax renewal."