Finance

Every Major Credit Ratings Agency Downgraded Louisiana in the Past Year

by | March 17, 2017

By Elizabeth Crisp

The third of the three major credit ratings agencies has downgraded Louisiana's financial outlook -- a move that will likely lead to higher interest rates for the state in the future.

Standard and Poor's announced the downgrade from AA to AA- on Wednesday.

It's the third downgrade in a little over a year. Fitch downgraded the state last April.

Moody's Investor Service, another of the top ratings agencies which had downgraded the state's rating last year, held the state's bond rating steady this week but with a negative outlook.

Gov. John Bel Edwards, who has called on the Louisiana Legislature to overhaul the state's budget in the session that begins next month, said that the ratings agencies' actions are proof of the need to rein in the state's finances.

"The credit rating agencies are echoing what I, and many in the Legislature, have said for a long time -- structural tax and budget reform is critically important for our state's future," he said in a statement Wednesday. "There is a responsible way that we can reform our tax structure to make it fair and predictable for businesses and also bring in sufficient revenue to support the state services a vast majority of state legislators believes is important to maintain for their constituents."

In its downgrade report, S&P cited "the state's persistently weak revenue collections stemming from prolonged contraction in the oil and gas industry coupled with weak income tax collections (both individual and corporate)."

State Treasurer Ron Henson called the move was "not totally unexpected, because the state's budget and supporting revenues continue to be problematic."

"The state still has a lot of work to do, and this downgrade is Wall Street's recognition of Louisiana's continuing problems," Henson said.

Moody's, in its negative outlook explanation, cited "continuing risks regarding a fiscal cliff looming in fiscal 2019 as tax increases roll off, uncertain revenue forecasts, implementation challenges and legislative reluctance to enact significant changes to the state's revenue structure" in its explanation for the negative outlook.

State lawmakers last year approved a temporary sales tax hike to shore up the budget, with plans to conduct a more in-depth structural reform this year.

Jan Moller of the Louisiana Budget Project, which advocates on behalf of low and moderate income people, said that the state's third downgrade should convince legislators to consider personal income tax when it reviews the budget. A task force that submitted recommendations to the Legislature included proposed changes to the state's income tax brackets in its report.

"It's something that has to be on the table when they sit down to look at the tax code," Moller said. "Everybody who has looked at this issue understands you have to look at the income tax as part of a reform solution."

(c)2017 The Advocate, Baton Rouge, La.

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