BATON ROUGE: Today, Gov. John Bel Edwards released the following statement on Louisiana’s credit rating. Moody’s Investor Services did not change the state’s credit rating, but issued a negative outlook. S&P Global Ratings lowered its long-term rating to “AA-“ from “AA.”
“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. Much of the state’s negative outlook is due to the fact the state will lose a significant amount of revenue in fiscal year 2019. 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. We have to get this work done, and I am committed to working with members of the legislature – Republicans and Democrats – to enact meaningful changes to our state that will, undoubtedly, help us in the future.”
The downgrade in the state’s credit rating is similar to an individual’s personal credit rating. When borrowing funds, the state will pay a higher interest rate until the ratings improve.
In the notice of the downgrade from S&P, the rating agency cited “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).”
S&P also references the need for structural tax reform in their notice and the fact that a significant amount of revenue will no longer be available when certain measures “sunset” in fiscal year 2019. The agency says, “The negative outlook is indicative of the expiration of revenue enhancements at June 30, 2018 when approximately $1.15 billion of temporary revenue enhancing measures (the fifth-penny sales tax projected to generate $881 million and removal of sales tax exemptions expected to generate $272 million) will sunset. While the legislature will have the opportunity to either renew the temporary measures or enact new revenue measures during the upcoming session, beginning April 10, 2017, precedent leads us to believe legislative action will be difficult to implement due to uncertainty about replacing the revenue measures with long-term structural tax changes.”
Moody’s Investors Services issued a negative outlook for the state citing the fiscal “cliff.” In their notice, Moody’s justifies the negative outlook for the following reasons:
- The fiscal cliff looming in 2018 as tax increases roll off;
- Uncertain revenue forecasts;
- and Implementation challenges and legislative reluctance to enact significant changes to the state's revenue structure.
Moody’s noted that several factors could lead to an upgrade in the state’s credit rating, including recurring and sustainable actions to address economic and revenue declines, but also noted that the state could face further downgrades if we are unable “to balance budgets with preponderance of recurring actions.”