While it isn’t news that the pandemic has negatively affected businesses in Baton Rouge, it is important to consider secondary effects of the economic downturn, which will impact everyone’s day-to-day lives. Municipalities in Louisiana, including those in the Capital Region, are more reliant on sales taxes on goods than almost anywhere else in the country – meaning that if people are spending less, there is also less revenue for schools, roads and other essential governmental functions.
Last week, the state Legislative Auditor updated a report from early May detailing how much tax revenues various parishes may lose through Fiscal Year (FY) 2025 due to both the pandemic and Hurricane Laura. It is important to note that thus far, the Capital Region has seemingly seen a positive economic impact in the wake of the storm due to evacuees flocking to Baton Rouge – hotel occupancy has been up 50% or more in each week since the hurricane hit, and anecdotally, retailers and restaurants have seen an uptick in revenues. However, according to the Legislative Auditor’s report, these short-term gains are dwarfed by the decrease in commerce caused by COVID-19 and the related limitations on in-person commercial activity.
The report is clear that some parishes are impacted more than others – in particular, East Baton Rouge experienced “drastic reductions in sales taxes” year-to-date. Over a five-year period, the report estimates that local governments throughout the state will lose out on over a billion dollars in sales tax revenues due to the pandemic. East Baton Rouge stands to lose the third most in the state behind Orleans and Jefferson, with an estimated $98 million in local revenues lost by the end of fiscal year 2025. That includes nearly $20 million in FY 2020 and $49 million in FY 2021. Other parts of the Capital Region will be affected as well – Ascension will lose nearly $22 million in that timeframe, including $3 million in FY 2020 and $9 million in FY 2021.
Although the pandemic was an unforeseeable event, it has highlighted the trouble with overreliance on sales taxes of goods for funding local governments. Consumer behavior is volatile, and when mass unemployment causes spending to drop, governments reliant on sales taxes have fewer resources to help their residents – at a time in which assistance is justified by necessity. As the state and region consider lessons learned from the impact of COVID-19 on our economy, comprehensive structural tax reform is reemphasized as a critical way for the state to protect local governments from the next unforeseen event.
As Senior Vice President of Business Intelligence, Andrew focuses on research and analysis for BRAC’s business development and economic competitiveness teams, providing economic, demographic, and fiscal research to support business expansion and relocation efforts in the Baton Rouge Area and analysis of education, workforce, tax, and other economic and public policy issues.