The Impact of Hurricane Katrina on the State Budgets of Alabama, Louisiana, and Mississippi

Publication Date: November 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Economics

Type:

Coverage: Louisiana Mississippi

Abstract:

After major disasters, affected state and local governments face the dual challenge of responding to the crisis and absorbing the economic losses associated with the disaster. Typically, tax revenue collections, both state and local, decline immediately following a disaster. The severity and range of the destruction determine when and to what level tax revenue will rebound. For states, the revenue loss is inopportune given both the cost of repairing government infrastructure and providing assistance to affected local governments and individuals.

Most states have emergency funds to tap into when disaster strikes. For catastrophic disasters on the scale of Hurricane Katrina, however, the emergency fund may be insufficient. In cases where the scale of the disaster overwhelms the fiscal capacity of state governments, the states may borrow to finance emergency spending. Each of the states most severely affected by Hurricane Katrina -- Alabama, Louisiana, and Mississippi -- could be forced to address budget shortfalls with increased borrowing. This report outlines the budget issues facing each of these states.

The last section of the report provides a rough approximation of the potential state tax revenue loss in the month (September 2005) following Hurricane Katrina. CRS estimates that if the disaster region lost about half of its economic activity in September 2005, then the state of Alabama would have lost $38.0 million in revenue, Louisiana $179.6 million, and Mississippi $108.0 million.

This report will be updated as legislative events warrant.