Louisiana’s economy is routinely challenged, requiring the Federal Government to step in and provide much needed aid.
Fundamental to Louisiana’s economy is the need for external financial assistance. In a typical year, at least half of the State’s operating budget consists of government grants. There are many atypical years as well.
Louisiana’s economy is challenged by three interlinked factors: its economy, its poverty and its geography. Louisiana’s economy is extremely volatile and fairly concentrated. The state relies heavily on energy and tourism (including gaming) and has no control over demands for either. International oil prices, the stock market and even the weather can impact revenues from these two industries, meaning a significant amount of the state’s revenue generation is beyond its control.
Beyond the challenged economic engine of the state, Louisiana struggles with a legacy of poverty. Approximately 20% of the population lives below the poverty level and the state ranks in the top five for highest poverty rate in the U.S.1 Finally, Louisiana’s exposure to natural and oil & gas-related disasters regularly interrupt the state’s economy.
This result is a state that is highly dependent on the Federal Government. Approximately $20 billion of the $37 billion budget for FY2022 is from the Federal Government, with more than half of that amount related to healthcare and Medicaid.2 The next largest portion of the budget goes towards education, particularly for poorer school districts. And 2022’s budget is not unique.
When Louisiana does have a unique year, it requires additional funding. Since 2017, the Federal Government has allocated $12 billion of disaster-related funds (NOT including COVID-related funds, which provided an additional $33.6 billion). Going back further, the State received more than $80 billion to assist with expenses related to Hurricane Katrina, and while BP paid the cleanup costs for the Deepwater Horizon oil spill, the disruption to the economy through both job loss and impact on other economic drivers, required additional federal support.3
The implicit understanding is that Louisiana does not have a structurally sound economy, and recognizing this, the Federal Government regularly closes its funding gaps. This is not unique to Louisiana, although it demands more assistance than most. While Louisiana’s fiscal health is not superb, despite the federal aid, it is sufficient to ensure its bills – including debt service – are paid on time.
Originally published by VanEck on April 29, 2022.
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