Louisiana’s top officials agreed Thursday to refinance state debt to generate $82 million in quick cash to help close gaps in this year’s budget.
The Bond Commission agreed to the financing maneuver over the objections of its chairman, Treasurer John Kennedy.
Lawmakers assumed the additional cash in its budget rebalancing work during the recently added special legislative session, so refusal to do the refinancing would have more than doubled a remaining $70 million shortfall for the budget year that ends June 30.
But the decision will add long-term costs to state debt repayment.
Kennedy was the only member to vote against the refinancing. He said he couldn’t vote for what he considers another budget gimmick, on top of years of short-term fixes that left Louisiana stumbling from one shortfall to another. He said the refinancing was the equivalent of shifting from a 15-year home mortgage to a 30-year mortgage to pay for a new boat.
“My foot’s sore, and I don’t want to kick the can anymore. Enough is enough. I’m tired of the three-card Monte,” Kennedy said after the meeting, referencing a card trick.
The state’s financial adviser, Renee Boicourt, of Lamont Financial Services Corp., told the commission a refinancing was one of the only ways Louisiana can generate sizable amounts of money by June 30.
“It’s something you really only do in circumstances like this,” she said.
But she also advised: “I recommend don’t do this again.”
Gov. John Bel Edwards and lawmakers intend to use the money to help close a budget gap that once reached $900 million. They passed tax increases, cut spending and used patchwork financing like the debt refinancing to help shrink the shortfall. Even with those fixes, the state’s budget is $70 million short, and deeper cuts will be required.
The governor’s chief budget adviser, Commissioner of Administration Jay Dardenne, told lawmakers in a separate budget hearing that the administration will announce where it intends to levy the cuts next week.
Advisers and staff for the Bond Commission said they don’t recall the state ever doing a debt refinancing of the type approved Thursday morning.
The refinancing involves selling bonds to investors to pay off debt service that comes due this year, essentially rolling the debt payment out again over a number of years, to be paid off with interest. In addition, other debts will be restructured to take advantage of low interest rates in the bond market.
Asked how credit rating agencies will view the maneuver, Boicourt said that depends on whether it’s a short-term bridge to an improved, more stable financial structure in the future or whether it’s a pattern of short-term fixes that continue next year and beyond.
Edwards was visiting with representatives of the major credit rating agencies Thursday at the Governor’s Mansion, seeking to reassure them that he and lawmakers are working to steady Louisiana’s finances.
Ratings from the credit agencies help determine interest rates when the state borrows money. A drop in a state’s credit rating raises interest costs, making it more expensive to borrow.
Moody’s Investors Service downgraded Louisiana’s credit last month, citing years of “structural imbalance” in the budget and declining reserves. The state remains on a negative outlook, at risk of further rating drops.
The Legislative Auditor’s Office estimates the Moody’s downgrade could cost Louisiana $69 million more for its borrowing over the next nine years.