Louisiana’s borrowing practices in recent years focused heavily on short-term fixes for the state budget that carried long-term price tags.
The decisions will cost state taxpayers for years, while edging Louisiana closer to its debt ceiling and threatening to add new limits to the state’s ability to do construction work. All the while, the state’s per capita debt load has edged up and up.
At Thursday’s Bond Commission meeting, representatives from the Legislative Auditor’s Office recapped a recent report that said borrowing and debt payment maneuvers during former Gov. Bobby Jindal’s administration could cost Louisiana up to $231 million in extra charges over decades.
A type of borrowing that brought extra money upfront involved a trade-off, paying higher interest rates. And the use of surplus dollars to pay off debt early freed up money to spend on operating expenses, but could have been spent in other ways that would have saved Louisiana millions in interest.
After hearing the audit findings, the Bond Commission — which includes Gov. John Bel Edwards’ representatives, several statewide elected officials and legislative leaders — approved another quick-fix maneuver. They agreed to refinance state debt to generate $82 million to help close gaps in this year’s budget.
Lawmakers and Edwards assumed the additional cash in their budget rebalancing work during the recently-ended special legislative session. Rejection of the refinancing would have more than doubled a $70 million shortfall remaining for the fiscal year that ends June 30.
But the decision will add long-term costs to state debt repayment.
Treasurer John Kennedy, commission chairman, was the only member to vote against the refinancing, calling it “another gimmick.”
The state’s financial adviser, Renee Boicourt with Lamont Financial Services Corp., told the commission a refinancing was one of the only ways Louisiana can generate that much money by June 30. She also advised: “I recommend don’t do this again.”
The Edwards administration insists it will end use of short-term fixes with next year’s budget. Such borrowing practices and other types of patchwork financing used in the budget during Jindal’s tenure drew the disapproval of national credit rating agencies. Their ratings help determine interest rates when the state borrows money through bond sales to investors.
Moody’s Investors Service downgraded Louisiana’s credit last month, citing years of “structural imbalance” in the budget and declining reserves. The Legislative Auditor’s Office estimates the Moody’s downgrade could cost Louisiana $69 million more for its borrowing over the next nine years.
The state remains on a negative outlook, at risk of further rating drops.
Meanwhile, the state keeps edging closer to its debt limit and risks breaching the cap within three years if borrowing practices don’t change, according to the latest debt report presented to the Bond Commission.
The report showed Louisiana carried a debt load of $1,522 for every man, woman and child in the state at the end of 2015. That’s a 28 percent increase since 2008. The state’s debt load has risen each of the last seven years.
A debt ceiling enacted in the early 1990s requires that annual repayment requirements fall under 6 percent of the state revenue forecast.
If Louisiana’s revenues go up, officials will get more breathing room under the debt limit. Lawmakers recently passed more than $1.2 billion in taxes that expire in 2018, so the debt ceiling falls when that money is slated to disappear.
If those taxes are renewed or the revenue is replaced, “we would be back on track,” said Senate President John Alario, R-Westwego.
No matter what happens, Louisiana will need to tightly manage construction spending. Boicourt noted “the state’s been operating very close to the limit” for years.
As the regular legislative session opened, Edwards announced he wants to rework the construction budget to prioritize roadwork and state building maintenance. He wants to drop some of the smaller, local projects favored by state lawmakers.
Even if he can achieve that, Louisiana will be paying off the debts of previous borrowing practices and digging out of a project backload for years.
Melinda Deslatte covers Louisiana politics for The Associated Press.