Impact of U.S. credit downgrade not yet clear for Louisiana

Though Standard & Poor downgraded the U.S. government debt from AAA to AA+ status Friday, the move’s full effects on Louisiana’s credit have yet to be seen, local economic experts say. Rajesh Narayanan, associate professor of finance at LSU, says it is “too early to tell” how the downgrade will affect the state. He says the impact on state and local credit depends upon national decisions, such as the spending cuts upon which Congress has yet to fully decide. “We don’t yet know the exact nature of the spending cuts,” he says, adding that the impact on Medicare and Medicaid are most likely to be of concern to Louisiana. Narayanan says that the financial sector has been bracing for rating-related fallout since the debt-ceiling debate. “The markets have already factored in that spending cuts are coming,” he says. “They’ve put lots of municipal markets on watch.” James Richardson, director of the LSU Department of Economics, says he’s confident that the S&P downgrade is “an act without many consequences” for Louisiana debt. “The credit markets will still survive,” he says. Richardson even sees a potential silver lining in the downgrade. “In one way, it may prove to be a stimulus to lawmakers to push a better spending package,” he says, “though that might not happen due to political differences.” As of May 5, S&P rates Louisiana as AA/Stable for general obligations, an upgrade. Its long-term rating is AA/Stable, also upgraded. — Ian McGibboney