The recent BP oil settlement is a “credit positive” for Louisiana and four other Gulf Coast states benefitting from it, according to one of the nation’s major bond rating firms.
The reason cited by Moody’s: some of the dollars will go to boost the state’s rainy day fund – a stash that comes in handy during revenue downturns.
The comment came in Moody’s Weekly Credit Outlook for Public Finance. Moody’s provides credit ratings which are used in determining the cost of state borrowing.
The tentative $18.7 billion settlement covered economic and environmental damages from the 2010 Deepwater Horizon disaster. Louisiana, Mississippi, Texas, Alabama and Florida get shares.
Louisiana gets the largest share of the settlement – $6.8 billion. Included is $5 billion for coastal restoration and repairing wetlands and damaged wildlife habitat, $1 billion to cover economic losses and $787 million of BP’s Clean Water Act penalties, which also will be used to repair natural resources.
Moody’s said Louisiana will get almost no benefit to its general fund. But the $1 billion for economic damages will be “front-loaded, with the state receiving $200 million in the fiscal year ending 30 June 2016 and the remainder over 14 years.”
“The $200 million initial payment equals more than 2 percent of the state’s unrestricted general fund budget. However, a state statute enacted in 2014 requires the economic damage award to be split among the state’s rainy day fund and two health-related funds.”
“Although the general fund will receive no direct benefit, the boost to the rainy day fund is a plus at a time when Louisiana is dealing with the effects of low oil and gas prices,” Moody’s said.