When the bright spot in the state’s financial situation is the phrase “negative outlook,” it says a lot about how deep the fiscal ditch is for Gov. John Bel Edwards and the Legislature.
The national ratings agencies have become increasingly concerned about the state’s financial situation as the real-life House of Cards of former Gov. Bobby Jindal has come tumbling down. Throw in a drastic fall in the price of oil, and Louisiana gets poor ratings right now, even after a special session of the Legislature passed some tax increases to backfill the budget.
So amid a lot of bad news, what is the good news?
State Treasurer John N. Kennedy said that, at the very least, Standard & Poor’s is keeping Louisiana’s credit rating steady. But it also is keeping the state on a negative outlook. The news comes a day after Fitch Ratings announced it had downgraded the state’s credit rating as Louisiana prepares to issue new bonds later this month.
Moody’s, the other of the three major ratings agencies, also recently downgraded Louisiana’s outlook, citing concerns over the state’s budget woes.
Lower ratings and outlooks mean the state has to pay higher interest rates when borrowing money.
Kennedy called on legislators to “address the structural imbalance in our state budget,” but that good advice is almost a platitude after years of studies.
Nor is it easy to cut the state budget. New leadership at the House Appropriations Committee has been pawing the ground in a series of subcommittee hearings on the budget, but they are not going to uncover a magic chest of easy cuts somewhere. The reality is that most expenditures are services that the public demands.
One of the problems with changing things? Louisiana may in some areas have an expensive state government, but the larger problem is that it has an expansive state government. Services that in many states are paid for by local taxes are typically performed by state agencies and paid for by state taxpayers. Local government does not raise enough of its own property or other taxes to pay for services but is in fact subsidized by the state.
That is a consequence of decades when the oil and gas industry paid a huge portion of state taxes, and we are in a process of trying to shift the costs to state taxpayers. That’s painful, but the alternative — the only real way to achieve Kennedy’s admonition — is to do away with state subsidies and agencies, leaving local governments with the obligation to raise taxes.
So taxes will come to us, one way or another, or the negative outlooks will keep appearing in the analyses from Wall Street.