Would a potential recession in 2023 impact Lafayette Parish School System?

As the potential of a national recession in 2023 looms, the Lafayette Parish School System has taken steps to minimize the impacts an economic downturn could have on its students and employees.

A potential recession is a serious concern for many school districts across the state, which rely on sales tax revenue as one of their primary sources of funding. A recession – usually defined as a decline in gross domestic product in two consecutive months – typically leads to significant drops in spending, which could result in less money for Louisiana schools.

There’s no guarantee that the nation will hit a recession in the next couple of years – consumer marketing company Statista calculated a 23.1% chance that the U.S. enters one by September 2023 – but LPSS Assistant Superintendent for Business Services Matthew Dugas said the district is positioned to weather a recession if one hit.

“Depending on how bad it was, we could make some adjustments going forward, if we had to,” Dugas said. “But none of those would be draconian, no matter how bad it is.”

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The district has three main revenue streams – sales tax collections, property taxes and the state. Both property tax collections and state money are fairly stable, but sales tax collections can vary in times of economic uncertainty.

Lafayette has not been a stranger to economic crises, especially during times when the oil and gas industry was reeling. When oil prices fell drastically around 2014-2016, the parish saw a significant decline in retail sales. From 2014 to 2015, sales fell by more than $404 million (a drop of 6.3%), followed by a $228.4 million drop from 2015 to 2016 (a 3.8% decline).

Generally speaking, the Lafayette area is in a better economic position than it had been in previous downturns. The region’s economic development groups, like One Acadiana and the Lafayette Economic Development Authority, have placed an emphasis on diversifying the regional economy to rely less heavily on the volatile oil and gas industry.

Now, Lafayette Parish has a solid concentration of jobs in more stable industries, such as healthcare and technology.

“We’ve been through really, really bad times before, plus you’ve had ups and downs with the oil industry,” Dugas said. “Thankfully our economy is a lot more diversified than it ever has been…When we look at our economy now, you see a greater percentage of healthcare jobs, and the university is also a hugely stable force here.”

In addition to the area’s stronger economic footing, LPSS has taken precautions in case it faced some strong financial headwinds.

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For one, the district has reserved enough money to make up for two-and-a-half months of revenue, meaning LPSS could sustain itself for that period even if all three revenue sources disappeared, which is extremely unlikely.

With two-thirds of the school board’s approval, the district could dip into that fund to avoid cuts.

LPSS has also been pretty frugal for the last few years, even though the parish has seen some of the highest retail sales and sales tax collections in its history, Dugas said. The district has avoided spending too much – reserving 75% of excess sales tax collections for capital for the next year.

In September, an LPSS blue ribbon committee looking at using sales tax collections for raises also discussed the need to be cautious with the potential of a recession looming in the distance. Despite record-high collections, the committee recommended a small raise of $500 for teachers, which the board passed during its October meeting.

Dugas said that, while there may be cuts if a recession hits, the district would be able to avoid “draconian” cuts by exercising options like holding off on some capital improvements.

“We’ve budgeted extremely conservatively,” Dugas said. “Even with putting that money into capital, we’ve been really aware of the money in the general fund and trying not to put them in one-time expenses…We’re not spending like there’s no tomorrow.”

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This article originally appeared on Lafayette Daily Advertiser: How could a possible recession impact Lafayette schools?