The “big three” financial rating services are taking a close look at Louisiana’s budget and that interest has mobilized the state’s top fiscal leaders.
An influential New York rating service told Louisiana fiscal officers Wednesday morning that it would decide, perhaps as early as next week, whether to lower the state’s credit rating. By afternoon another service ruled that the state’s finances were stable. And tomorrow another Louisiana group will be calling the third rating service that is making noise about possibly changing Louisiana’s credit score.
The values the big New York financial ratings houses put on a state’s finances can increase or decrease the costs of borrowing for the state’s construction and other projects by tens of millions of dollars.
Fitch Ratings assigned an “AA” rating to approximately $228.31 million in refunding of Louisiana general obligation bonds. The agency also described Louisiana’s rating outlook as “stable.”
Commissioner of Administration Kristy Nichols said that news was good.
“We’re facing some significant challenges as we head into fiscal year 2016, including the drop in oil prices,” Nichols said. “But this rating affirms that our approach to the upcoming budget is the right one. We are creating sustainable changes that ensure we can present a balanced budget that does not raise taxes, uses fewer non-recurring sources of revenue, and provides options for reducing the impact on higher education and healthcare.”
But the fear that Moody’s Investors Service would downgrade the state’s credit status was one reason why Nichols, State Treasurer John N. Kennedy, the chairmen of the two financial committees and other fiscal officers got on the phone Wednesday morning to talk with Moody analysts. Moody’s has voiced concern about the way the state had structured its budget, the drop in the price oil and the decline state revenues that price collapse caused.
Gov. Bobby Jindal said Wednesday afternoon that he too would be calling Moody’s. “I thought it was important that they hear from me as well,” Jindal said. He’s calling Thursday.
The state’s fiscal leaders also will be calling Standard & Poor’s on Thursday. That rating agency is considering moving Louisiana from a “stable” economic situation to a “watch” status, which is a prelude to downgrading.
“Two out three rating agencies are saying, ‘Look you have a problem down there’,” Kennedy said. “Yes, that catches your attention.”
Kennedy, Nichols, House Appropriations Committee Chairman Jim Fannin, Senate Finance Committee Chairman Jack Donahue, Lela M. Folse, director of the State Bond Commission, and Renee Boicourt, the Bond Commission’s financial adviser, were on the 8 a.m. call to Moody’s.
The same group probably will be calling Standard & Poor’s analysts.
Moody’s said only two options are on the table: downgrade the credit rating or affirm the rating for a period of time to get Louisiana’s fiscal house in order.
“We were united in our plea,” Kennedy said, adding that the seriousness of the meeting was such that had he more notice he would have traveled to New York to meeting with Moody’s in person.
“We wanted to emphasize that we’ve been through this before,” Kennedy said. The state had to claw out daunting fiscal situations in the late 1980s after a similar abrupt collapse in the price of oil and after the 2005 hurricanes.
Kennedy said he asked the Moody’s not to downgrade the rating investors use to decide whether lend money to the state, at least give the Louisiana Legislature time to address a $1.6 billion shortfall in revenues for the fiscal year, FY2016, that starts July 1.
Moody’s had voiced concern that in addition to dramatic $50 drop in the price per barrel of oil, and its impact on the state’s fiscal condition, as well as worry about the way the state budget has been structured year after year.
“They didn’t ask many questions,” Donahue said.
The key questions, Donahue said, were about the use of “one-time money” — dollars likely not to occur again — to prop up the operations of state services that go on year after year. The analysts asked the Louisiana representatives to define “non-recurring” revenues for them, presumably because of criticism by some that some revenues are identified as “recurring” — from a source that makes funds available every year — rather than as one-time.
“We asked them to give us an opportunity to correct the problems,” said Donahue, R-Mandeville. “I feel like the conversation that we had was a positive conversation.”
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