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The Louisiana economy is struggling with dependence on oil and tourism, research shows

A Pew analysis released on Monday shows that the state’s tax revenues for 2020 have, on average, rebounded to pre-pandemic levels. (Image source: PewTrusts.org)

Despite historic declines in early 2020 as the novel coronavirus spread and the economy slowed, tax revenues in most states recovered to near pre-pandemic levels by the end of the year – but not for Louisiana. An analysis released Monday by Pew researchers sheds light on how Louisiana’s reliance on oil and tourism has hampered its economy compared to states with more diverse markets, and one of the state’s most prominent economists said the recovery will remain sluggish until Louisiana significant improvements ”is being made by other sectors.

ON state fiscal health analysis conducted by the Pew Charitable Trusts shows that by the end of 2020, total government tax collections nationwide had recovered to just 1.9% below their pre-pandemic levels, adjusted for inflation. In addition, 20 states had fully recovered – and recorded more revenue in 2020 than in 2019.

Performances in the fourth quarter were very healthy overall, reaching levels that surprised forecasters, said Justin Theal, an official on Pew’s state health policy team. The numbers contrast sharply with the steepest slump in at least 25 years in the second quarter when most states were locked in.

But while most states’ tax revenues rocketed back to near pre-pandemic levels, Louisiana’s did not. By the end of the year, Pelican State’s total tax revenue in 2020 was 4.2% below pre-pandemic levels.

“What I really notice about Louisiana is that the state’s tax revenue has been hit as hard as the national trend,” Theal said. “The state saw sales declined about 25% in the second quarter; However, the recovery in Louisiana was much weaker than in other states. “

LSU economics professor Jim Richardson, the 30 years as an economist at the Louisiana Revenue Estimating Conference, said Louisiana’s sluggish economic recovery was largely due to its reliance on the oil and gas and tourism sectors – the two main industries hardest hit by the pandemic. The oil industry had already started a slump before January 2020, and that slump was made worse by the pandemic.

“Two elements of the economy that have suffered disproportionate disruption have been the oil and gas sector and the tourism sector,” said Richardson.

The construction sector has also suffered, particularly when large industrial construction projects were halted during the pandemic, he added.

In a July 2020 interview with the Illuminator, Richardson predicted that Louisiana would see this slow recovery, citing the same reasons that the Pew researchers cite in their most recent study.

Still, Louisiana fared better than other outliers like Alaska, Texas, North Dakota, and Wyoming – states whose economies are also heavily dependent on the fossil fuel industry. Alaska had the worst, a 34.4% decline.

“One ray of hope is that Louisiana’s last quarter of 2020 was positive,” said Theal, the Pew researcher. “That matters because there was historic, if not unprecedented volatility in the second and third quarters.”

Factors that sparked the fourth quarter recovery across the country included massive federal aid and the virus’ unequal impact on socioeconomic strata. Theal said most higher-income people remained employed during the pandemic, so states with larger professional employment sectors tended to have easier recoveries.

I think we need to grow our economy and expand it to other sectors. – Jim Richardson, LSU economist

Louisiana, on the other hand, lost more jobs than any other state during the pandemic, according to data from the Bureau of Labor Statistics released in a new one Pandemic to Prosperity Report released on Wednesday.

The longer-term prospects for tax revenues remain uncertain, especially as the federal aid programs are expiring alongside the recent increases in the COVID-19 delta variant. Tax cuts in some states are another source of uncertainty, Theal said.

On Monday, Louisiana had the Largest increase in coronavirus cases per capita nationwide, and that summer the state legislatures passed Income tax cutsalthough these cuts are revenue neutral and have yet to be approved by voters.

“At the moment it’s just unclear how the Delta option will affect state budget prospects,” said Theal. “When I look at the long-term trend in tax revenues in Louisiana, it is noticeable that the state never fully recovered from its declines during the Great Recession.”

Richardson, the LSU economist, said Louisiana’s recovery rate may not improve until the state diversifies its economy because the oil and gas sector is not growth-oriented.

“I think from that point of view we need to improve our economy significantly,” he said. “That doesn’t mean that we have to do without oil and gas entirely. I think we have to enlarge our economy and expand it to other sectors. “

He referred to other southern states like Georgia, which have larger professional service sectors like healthcare and technology. Georgia’s tax revenue in 2020 grew 1.5% above pre-pandemic levels.

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