(The Center Square) – Louisiana was hardly booming before the COVID-19 pandemic, but the nature of the state’s economy could make recovery from the current recession particularly difficult.
One recent study ranked Louisiana 49th out of 51 states (counting Washington, D.C.) for prosperity, ahead of only Arkansas and Mississippi. As with many other similar reports, governance, public health, education, living conditions and the natural environment were among the factors contributing to the poor showing.
The Legatum Institute study ranked Louisiana poorly in a number of categories:
- Governance: 49th
- Social capital: 47th
- Business environment: 46th
- Living condition: 49th
- Education: 48th
- Natural environment: 50th
The study’s authors say Louisiana’s low ranking coupled with a high rate of COVID infections raise concerns about the state’s ability to recover.
“We have so many families even in good times that are barely getting by,” said Melissa Flournoy, a former state lawmaker who chairs the Coalition for Louisiana Progress. “For Louisiana, I think it’s almost a perfect storm.”
Tourism supports more than 187,000 jobs and contributed almost $6 billion to the state’s economy in 2018, according to a state-commissioned report. New Orleans leans heavily on tourism, and even when large gatherings are permitted again it’s hard to know if travelers will feel comfortable attending festivals or conferences in a city that was a well-publicized early national leader in COVID infections.
“Don’t travel,” said LSU economist Jim Richardson, describing the pandemic mindset. “Don’t go out to eat. Don’t have large meetings. Don’t have large festivals. All of those things are very important to the New Orleans area in particular but also to other areas of the state.”
The oil and gas industry is not as central to Louisiana’s economy as it was before the oil crash of the 1980s. But economist Loren Scott says the sector supported almost 263,000 jobs in the state in 2015 while paying average wages far above the state’s median income.
This spring, an oil surplus and an international price war combined with lower demand during the pandemic to briefly push prices so low that traders were paying buyers to take oil off their hands. Demand for gasoline has bounced back to some extent but the need for jet fuel hasn’t, Scott said.
That’s bad news for the state’s refining sector – Scott says Louisiana has the second-most refining capacity in the nation – and for the various companies, particularly in the Lafayette and Houma areas, that service offshore production. Before the pandemic, Scott expected the number of rigs in the Gulf of Mexico to increase from 25 to 35; at last count there were 12.
The state's legal climate – dubbed a "Judicial Hellhole" by the American Tort Reform Foundation – also has been a challenge for the oil and gas industry and others.
A study released last year by the Pelican Institute for Public Policy said that lawsuits seeking to make oil and gas companies pay for damage to Louisiana’s coastal environment cost the state’s economy between $44.4 million $113 million per year.
As a small state, Louisiana isn’t in a position on its own to lead its recovery, Richardson says. The petrochemical sector, for example, depends in large part on a vibrant global economy, Richardson says. He says the state has a smaller proportion of jobs that can be done from home compared to some other states, which also is a disadvantage during an infectious disease pandemic.
Louisiana has long needed to diversify its economy, which calls for an educated and well-trained workforce, said Barry Erwin with the Council for a Better Louisiana. The state’s high rate of poverty contributes to poor educational outcomes, and students whose school year is interrupted by the pandemic and don’t have reliable internet access at home are in danger of falling even further behind, he said.
“Other states are going to recover faster than us because we already have these historical, built-in disadvantages,” Erwin said.
Federal stimulus is running out, and Congress is in the process of hammering out the next aid package. Louisiana Gov. John Bel Edwards hopes the feds continue to enhance unemployment benefits while sending money to shore up the state’s unemployment trust fund, which triggers tax hikes on employers when it runs low.
“We kind of have this artificial bubble that’s being created,” said Jason DeCuir, a tax attorney who chairs the Louisiana Legislature’s business-led economic recovery tax force. “When this stimulus is eventually turned off, my concern is you’re going to be left with a lot of small businesses that did not survive, and a lot of people on the unemployment lines that won’t have a place to go back to work.”
The task force backed more than a dozen successful bills during this year’s legislative sessions meant to provide short-term relief to state businesses, including measures providing tax breaks, legal protections, and a fund that uses federal CARES Act dollars to reimburse business owners for COVID-related expenses. DeCuir says recently approved changes to the state’s civil legal system could improve the state’s business climate.
Looking ahead, figuring out how to streamline the state’s highly complex and decentralized sales tax collection system would make it easier to do business in Louisiana, DeCuir said. And Michael Hecht, president of Greater New Orleans Inc., a regional economic development organization, has said economic opportunities for the state could emerge on the other side of the pandemic.
The COVID-19 pandemic has highlighted how much of the nation’s supply chain is based overseas. If corporations begin to rethink those decisions, Louisiana, already a leading state for foreign direct investment, ought to be able to compete for those projects, Hecht said.
There are a few things nearly everyone involved in state policy seems to agree on, such as improving early child care and education and expanding broadband internet access to unserved parts of the state is important. Lawmakers approved measures this year intended to help Louisiana get a healthy share of billions of dollars the federal government plans to dedicate to rural broadband.
Flournoy said Louisiana for too long has focused on “giving away the farm” in the form of tax breaks for large industrial companies while not doing enough to support education and infrastructure. People are leaving rural parishes, but historically the state hasn’t done much to promote economic development in those communities except build prisons, she said.
Flournoy says now is a good time to think about how to “reinvent Louisiana.”