Moody’s Investors Service warned Monday that Louisiana’s deteriorating financial situation is a “credit rating negative for the state.”
Moody’s is not changing the state’s bond rating, but the influential service is warning investors of possible dangers, said David Jacobson, Moody’s communications strategist.
Commissioner of Administration Kristy Nichols expressed confidence that Louisiana’s bond rating would not worsen.
A “credit negative” rating would make investors less willing to purchase Louisiana’s bonds, which would increase the cost of borrowing for the state.
“Since 2008, our bond rating has been upgraded eight times. We currently have the highest ratings we’ve had in two decades,” Nichols said in a prepared statement. “While the decline in oil prices has created a challenging situation, we are going to make the reductions necessary to balance our budget and maintain our rating.”
But State Treasurer John Kennedy said Nichols “is the only person in the Milky Way who thinks Louisiana is in good shape financially.”
Moody’s response to the recent reduction in state revenue estimates could result in the downgrade of the state’s credit “outlook” from stable to negative, he said. The next step would be a bond rating downgrade.
“This is a warning shot across our bow. They are going to downgrade unless we get our fiscal house in order,” Kennedy said.
Such a move is “inevitable” if the Legislature, during its 2015 session, doesn’t fix “the structural deficit” and leaves the budget issues until the next administration, he said.
“Each year, for the past seven years, we have spent more than we took in,” Kennedy said. “We filled the hole with nonrecurring revenue, budget gimmicks and pretend ‘efficiencies’ that never materialized. ... There are consequences to being fiscally irresponsible.”
The national credit rating agency’s report notes Louisiana’s multiple fiscal challenges.
Moody’s noted the $330 million revenue forecast drop in the current fiscal year; a $1.6 billion budget hole in the fiscal year that begins July 1; current midyear budget cuts; the dwindling rainy day fund; and less than stellar job growth.
“Because Louisiana has a structural deficit, significant downward adjustments to revenues will make balancing the 2016 budget especially challenging,” Moody’s said.
According to Moody’s analysis, Louisiana’s problems go beyond the drop in oil prices.
“As the U.S. economy picked up steam, Louisiana had muted job growth even before the oil price decline,” Moody’s wrote. “Payroll employment grew just 0.8 percent in the first half of 2014, compared with 1.4 percent in 2013.”
Moody’s also said Louisiana continues to tie its hands on the state budget, including recent passage of two constitutional amendments locking up dollars for nursing homes and hospitals.
Follow Marsha Shuler on Twitter @MarshaShulerCNB. For more coverage of the state capitol, follow Louisiana Politics at http://blogs.theadvocate.com/politicsblog/