Aerial view of the Louisiana State Capitol building. (Photo credit: Wesley Muller/Louisiana Illuminator)
Louisiana is projected to have tens of millions of extra dollars to spend after the state ended its last budget year with a $590 million surplus, according to the latest calculation.
Gov. Jeff Landry and lawmakers face constitutional restrictions on how they can spend the money. They have to use half of any surplus for state reserves and to pay down public retirement debt.
The rest can go toward one-time building projects, coastal restoration, roads, bridges and other transportation needs, but it cannot be used to deal with Louisiana’s looming budget deficit. It cannot cover, for example, teacher compensation.
“Surplus funds cannot be used for recurring budgetary operational expenses or requirements and therefore, cannot be used toward solving the upcoming FY25-26 budget shortfall,” Commissioner of Administration Taylor Barras wrote to legislators in a letter last week.
The $595 million is left over from the state’s fiscal cycle that ended June 30. That was the last budget plan put together by Gov. John Bel Edwards and the former Legislature, who left office at the beginning of 2024.
Louisiana faces a financial shortfall of at least $587 million next year primarily because of automatic tax cuts scheduled to take effect next year.
The state sales tax rate is expected to drop from 4.45% to 4% on July 1, costing the state $455 million annually. A business utility sales tax is also expected to roll off the books at the same time, among other more modest changes.
An automatic income tax cut worth $200 million to $400 million per year could also go into place in January 2026 if it’s determined later this year that the state has met certain revenue goals. That will grow the budget deficit even further, to at least $787 million.
Landry is hoping those specific tax cuts will not come to fruition, however. The Republican governor wants to overhaul the structure of the tax system.
Under Landry’s plan, most Louisiana residents and corporations would see an income tax cut but continue to pay a 4.45% sales tax rate that would be applied to a wider range of services. Business taxes would also be reshuffled.
Landry hopes to pass his tax package in a special session starting the first week of November, though some of the plan would also need approval from voters through a constitutional amendment in March.