In the long term, can Louisiana avoid a downgrade of its credit rating under its current fiscal management style?
Given that the state seems to have narrowly avoided a credit downgrade from the big three financial rating agencies, new stakes have been added to the upcoming legislative session to fend off punishment by credit score. Gov. Bobby Jindal and other state officials appealed to the three agencies promising structural changes in the state budget and pleading for not only time, but a second chance. The possibility of a downgrade, sparked in part by the credit agencies looking at the status of states heavily impacted by the drop in oil prices, would pose a serious threat to the state’s ability to attract new business. —Gabrielle Braud
John Kennedy
State Treasurer
“NO”
Kristy Nichols
Commissioner of Administration
“YES”
The Problem
Rolling in the dough
In my opinion, we don’t have a revenue problem. Our problem is on the spending side. It may take us two or three sessions to properly restructure the budget, but if we do, we won’t get a downgrade; if we don’t, we will.
Carefully cut
They [the credit agencies] wanted to make sure that the cuts that were made were cuts that can be sustained, which is why you see a drastic reduction in the cut to higher education. In my opinion, if approved, it [the proposed executive budget] might not only have the effect of not having a rating adjustment—it could restore our rating outlook to stable with Moody’s and S&P.
Slippery slopes
No Band-Aids
We can fix it, but we have to do things differently. The Legislature has to stop balancing the budget with nonrecurring revenue, by raiding savings accounts and using accounting tricks. We have to have a balanced budget that is truly balanced without just being balanced on paper with smoke and mirrors.
Following the rules
The executive budget essentially follows the instructions or guidance that the rating agencies provided. The rating agencies are specifically looking for recurring revenue that is maintained in Louisiana over time. They were also looking at savings and efficiencies that agencies could withstand, that would occur over time.
Tipping point
The last straw
I think the drop in oil prices, based on my conversation with the rating agencies, was a certainly a factor, but I spent a few days in New York with the rating agencies last July before the price of oil started dropping in September, and I can tell you they had major problems. I think the oil was the straw that broke the camel’s back…but I think they would have taken action anyway.
It’s a process
They were looking closely at all the states that had a reliance on oil and gas revenues in their budget. They were also looking at the $1.6 billion shortfall and they were concerned about how we were going to close the gap. The legislative leadership met with the rating agencies, as did the governor, and we said, “Look, we are going to go through the legislative process” … and I think that education went a long way.
