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Revenue loss from Katrina prompts La. lawmakers to consider cuts

NEW ORLEANS—Faced with the worst financial crisis in Louisiana history, state legislators will begin a special session Sunday that's devoted to dealing with a nearly $1 billion revenue loss caused by Hurricane Katrina.

A crucial part of meeting this crisis will be paying the state's share of the projected cost of its Federal Emergency Management Agency bill, or $3.7 billion.

"We won't have to pay it all at once, but we will have to make payments as we go along," said Denise Bottcher, a spokeswoman for Gov. Kathleen Blanco. "That's what we're talking about right now."

And $550 million on hand can't be used because Louisiana law prevents any state operating surplus and most of a $450 million rainy day fund from being spent, even during an emergency, without first holding a voter referendum. The state also has a balanced budget requirement for its annual spending plan, pegged at about $18.7 billion for the current year.

"If you are on the receiving end of (state) services, you are going to be greatly displeased," said state Rep. Joe Salter, the speaker of the Louisiana House of Representatives. "Government services, both state and local, will be significantly reduced. There is no question about that."

The revenue loss stems mainly from Katrina damage in the New Orleans area, the state's economic hub. But evacuees have been located around the state, where their children are putting severe pressure on local school districts.

"One-third of our economy has been disrupted," Salter said, "There is no way that can happen without affecting every section of the state."

While Salter, a Democrat, would not speculate on what programs will be targeted for cuts, fellow Democrat Rep. Charles McDonald said he believed some slashes will be made in education and social programs. He declined to be more specific.

For Elaine Joseph, whose home in New Orleans' devastated Lower Ninth Ward is beyond repair, the special 17-day legislative session called by Blanco seems to promise little.

In the eerily quiet, mostly empty neighborhoods, there is no water or electricity. In other parts of the city where utilities have been restored, services such as civil court, public libraries and regular garbage pickup are lacking. Corner grocery stores open for business are rare.

"From down here, it doesn't look like any of this can be recovered. People have moved away. We don't know if they're ever coming back," Joseph said Friday while searching her muddied home for salvageable items.

"I'm not coming back here," she said. "If I heard the rain on the roof I couldn't sleep."

Her brother-in-law, Aaron Wharton, 58, carried a kitchen chair from the house and tossed it onto a pile of wreckage on a street lined with a dozen of such piles.

"You hear they're going to send money down here. Then the next thing you hear is they're going to wait to see what happens in Baton Rouge," Wharton said, adding, "If they do anything, I think it's going to be a long drawn-out process."

State Rep. Kay Katz agrees with Wharton.

The Republican from Monroe in the far, rural north of the state said that this first special session will be followed by another in January, and maybe another after that.

"This is going to continue for years to come," she said. "This is the worst financial crisis the state has faced. It's going to take quite a while to sort it all out."

Katz and McDonald, like Salter, believe that cuts in state government jobs are inevitable. Exactly how many will depend in part on Washington, they say.

Katz said the federal government has twice stepped in with annual $300 million cash infusions to offset the cost of Medicaid, which is expected to greatly increase because Katrina caused thousands to lose their jobs and health insurance.

"I think the American people, and that's what the federal government is really, are going to step in and help us out again," Katz said.

Salter said that while the state's $225 million surplus from last year's operating budget and a $453 million rainy day fund accumulated in part from tobacco lawsuit settlement money look enticing, only a portion can be used. This would be about $150 million, or one-third of the rainy day fund.

Options that exist for lowering the number of state employees to be cut include setting up a low-interest loan pool supplied by banks across the state.

McDonald, the Democrat from Bastrop, said the key will be up to President Bush.

While federal taxpayer funds cannot be used to pay for state government administration, McDonald said Washington could send aid to rebuild infrastructure, including destroyed or damaged federal and state buildings and roads.

"We need to see what kind of a federal bailout we get. This is way beyond the $300 million we'll probably get to help with Medicaid," McDonald said. "If the bailout requires a 20 percent or 10 percent match from the state, we're going to be in trouble. If it doesn't, maybe we'll be all right."

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(Pawlaczyk reports for the Belleville News Democrat.)

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(c) 2005, Knight Ridder/Tribune Information Services.

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