Louisiana’s top fiscal lawmakers are scheduled to talk Wednesday with an influential rating service in hopes of keeping the agency from lowering the state’s bond rating.
Moody’s Investors Service last week warned that the state’s deteriorating financial situation could lead to a lower credit rating.
A “credit negative” rating would make investors less willing to purchase Louisiana’s bonds, which would increase the cost of borrowing for state construction and other projects.
Commissioner of Administration Kristy Nichols expressed confidence that Louisiana’s bond rating would not worsen and said the conversation was just to bring Moody’s up to date with what is happening here.
“We want to help them have an accurate picture of the state of Louisiana and the approach we’re taking,” Nichols said. “We don’t have any indication that there will be anything negative at all.”
Louisiana House Appropriations Committee Chairman Jim Fannin, of Jonesboro, and state Senate Finance Committee Chairman Jack Donahue, of Mandeville, will be on the call with Nichols. Neither Donahue nor Fannin returned calls Tuesday.
“We are creating sustainable changes to the overall state operating budget that will continue our record of fiscal conservatism,” Nichols said. “The bottom line is that our budget will be balanced, it will not rely heavily on one-time funds, and it will provide options for reducing the impact on higher education and healthcare.”
Nichols said they would impress on the Moody’s officials that Louisiana has billions of dollars of investments on the books and promises of more. They also will tell the ratings service that the numbers of jobs are growing and that the state’s economy is healthy despite the drop in oil prices.
Oil prices have dropped about $50 per barrel since the state’s budget was originally drafted. Because the state collects severance taxes, royalties and other fees based on the market price of oil, state government has twice had to realign its spending plans to adjust to the decrease in revenues. The latest reduction, which was recognized a couple weeks ago, means that state government won’t have about $275 million it anticipated.
According to Moody’s analysis, Louisiana’s problems go beyond the drop in oil prices.
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. 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.
“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.”
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