The number of days states could cover operations using only rainy-day funds fell in fiscal year 2025, which marked the first decline since the Great Recession. Louisiana could run for 34.4 days using only rainy-day funds, well below the 50-state median of 47.8 days. Pew’s Page Forrest and Justin Theal explain how states should handle budget reserves:
(S)tate leaders should be cautious about relying on rainy day funds to close deficits, because many states’ reported budget gaps stem from structural imbalances—when recurring revenue is insufficient to support recurring expenditures—rather than from short-term shocks. Although reserves exist to provide relief during times of fiscal stress, they are not a sustainable solution for persistent budget shortfalls.
States’ reserve balances will be under more stress as the federal government enters an era of fiscal retreat:
New federal Medicaid and SNAP policies are expected to increase states’ administrative costs and the share of program expenses that states must cover, and to constrain key revenue sources over the coming years. And states are also awaiting guidance on possible changes to FEMA, which may increase their costs for disaster relief, creating further demand on reserves. Although reserves cannot permanently offset these new and growing costs or replace federal support, they can serve as a temporary bridge, giving policymakers time to assess their options and adjust long-term plans.
Megabill will weaken economy and hurt low-income households
The federal tax and budget megabill will increase the federal deficit and weaken long-term economic growth. That’s according to a preliminary assessment of the new law by the Brookings Institution:
(M)ajor models project that, over longer periods, the higher deficits that OBBBA creates will reduce national saving and hence reduce future national income, either by pushing up interest rates and crowding out private investment or by increasing indebtedness to foreigners. The result will be a smaller long-run economy than otherwise. Due to weak growth effects, dynamic scores of the Act tend to show higher deficits than conventional scores.
The law will be particularly harmful for low-income families:
Permanent rate cuts and business tax provisions direct the largest benefits to high-income households, while many of the spending cuts fall on low-income and immigrant families. When plausible assumptions about deficit financing are incorporated, a majority of households—and nearly all low-income households—end up worse off. Recent tariff policies, though not part of the OBBBA, amplify the regressive tilt of the overall tax system.
Millions in state infrastructure dollars remain unspent
More than $45 million that Louisiana has allocated for local infrastructure projects in recent years remain unspent. Government red tape can hold up construction, and projects can be forgotten about entirely as new leadership takes control of local governments. WBRZ’s Alexis Marigny explains how unspent transportation dollars from previous years impact current-year finances:
“The dollars that the state appropriated are tied up and not available for other projects,” [[Assistant Commissioner for Facility Planning and Control at Louisiana’s Division of Administration Roger] Husser said. … Lawmakers told the Division of Administration on Monday to create a list of projects from previous years that have carried over. That way, the state can organize its priorities and make sure money allocated by the legislature gets spent on the projects lawmakers want.
States most impacted by spike in gas prices
Rising gas prices caused by the war in Iran will cost American drivers an extra $9.4 billion per month. Louisiana drivers will pay an extra $147.9 million more per month ($40.08 per person), the ninth-highest amount in the nation. Some lawmakers are considering gas tax holidays to address the pain at the pump. But as Carl Davis of the Institute on Taxation and Economic Policy explains, suspending gas taxes is an ineffective way to provide relief to drivers:
First, a significant share of the tax savings is captured by the oil industry and motor fuel dealers as higher profit, benefiting the owners of those companies who tend to be wealthier than average. Second, much of the tax savings flow to businesses that use motor fuel to ship their products or provide services, and some of a temporary tax cut will be captured by those businesses’ owners rather than passed along to their customers. Third, in the case of state gas taxes, a significant share of the holiday leaks outside of the state’s borders both when travelers purchase gasoline and when nonresident shareholders and customers benefit from the portion of the tax cut benefiting the oil industry and other businesses.
Number of the Day
24.20 – Louisiana’s state innovation index score, which ranked 50th out of all states and the District of Columbia. (Source: WalletHub)