Louisiana gets third credit downgrade since February 2016

BATON ROUGE — Louisiana’s credit took a new dip Wednesday, as a national rating agency downgraded the state because of its continued financial uncertainty, making it more expensive to borrow money for roadwork and construction projects.

S&P Global Ratings dropped Louisiana’s rating one notch, the third national rating agency to downgrade the state’s credit since February 2016, as Louisiana continues to struggle with financial gaps that have stretched over nine years.

In its analysis, S&P also declared Louisiana’s financial outlook “negative.”

The rating agency cited weak tax collections, declines in the oil and gas industry and use of patchwork fixes to fill recent deficits. The agency notes that $1.5 billion in temporary taxes and other revenue passed by state lawmakers expires in mid-2018, creating further instability.

Gov. John Bel Edwards said the downgrade shows the need for “structural tax and budget reform” in the upcoming legislative session that begins in April.

“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 (are) important,” the governor said in a statement.

The downgrade comes a week before Louisiana plans a general obligation bond sale to borrow $180 million for construction work. Credit agency ratings help determine interest rates on bonds, so the upcoming sale could become pricier.

“This is not totally unexpected, because the state’s budget and supporting revenues continue to be problematic,” Treasurer Ron Henson said in a statement. “The state still has a lot of work to do, and this downgrade is Wall Street’s recognition of Louisiana’s continuing problems.”

Moody’s Investors Service downgraded Louisiana’s credit rating in February 2016, and Fitch took a similar approach in April 2016. The agencies have described persistent budgetary imbalances and unsteadiness. The decline in oil prices has driven up unemployment rates in the state and hit its tax collections.
S&P dropped the state’s rating on general obligation bonds from AA to AA-minus and on appropriation bonds from AA- to A-plus.

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