Moody’s Investors Services has given Louisiana a favorable Aa3 rating on $73.7 million in unclaimed property revenue bonds that will be used to continue work on completing Interstate 49 South, State Treasurer John Kennedy said in an issued statement Thursday.
Kennedy said he intends to sell some $70 million to $80 million in bonds, probably within the next few weeks. He said his office is waiting for additional credit ratings to arrive, including one from Standard & Poor’s, in order to bolster the state’s financial reputation and lower the interest the state will pay. He said S&P may respond within the next few days, perhaps as early as Friday, but he cautioned that the ratings services operate independently; there’s no guarantee S&P will issue a favorable report.
“This is a victory for the citizens of Louisiana,” Kennedy said of Moody’s assessment, which came Thursday. “Moody’s could have downgraded us, but they didn’t. They have left us on negative credit watch, and Moody’s is giving new leadership time to fix our problems.” Louisiana will hold state elections on Oct. 24.
Kennedy said he asked Moody’s not to lower the state’s credit rating, which he said was a possibility.
“Moody’s kept us on a negative credit watch,” he said, “but they aren’t going to downgrade us. They will wait for new leadership in Baton Rouge: a new governor, a new Legislature and new officials.
“We had all four wheels in the ditch,” Kennedy said of the state’s fiscal situation. “The Legislature got one wheel out. The next administration deserves a chance to fix this.”
Kristy Nichols, commissioner of administration, was more upbeat about the state’s finances.
“Today’s affirmation from Moody’s reflects that we made concrete progress in structurally balancing the state’s budget. I’m confident that the outlook will improve in the future as the ratings agencies see that we have been responsive in addressing their concerns,” she said in an issued statement.
Louisiana’s bond sale will finance construction on portions of I-49 South, a top priority locally for One Acadiana and, before it, for the Greater Lafayette Chamber of Commerce. Excess annual collections from the unclaimed property program pay the debt service on the bonds without anyone losing unclaimed property money, Kennedy said.
As treasurer, Kennedy is authorized by the Legislature to sell up to $200 million in bonds for the highway financing; his office sold $113 million in December 2013. Eighty million dollars more would keep him within the Legislature’s limit. Kennedy said that the bonds are usually purchased by large institutional investors like Fidelity Investments or Goldman Sachs, although some individuals buy government bonds.
In its summary rating rationale, Moody’s noted that Louisiana’s credit rating reflects “continued budget gaps due to underperforming revenues; the use of nonrecurring resources to plug budget gaps; the ongoing slump in the oil and gas markets, and; the challenges the state faces in dealing with rising Medicaid and fixed costs.”
To the good, Moody’s noted the state made progress in narrowing its budget imbalance for 2016 and revenues generated by its recent share of the $18.7 billion settlement with BP over the 2010 Deepwater Horizon incident.
“There is no denying that Louisiana has serious budget issues. Moody’s noticed that we’re budgeting too much nonrecurring money and not doing anything about our runaway pension liability,” Kennedy said. “We asked Moody’s not to downgrade us and to give the next governor and Legislature time to fix the problems. I’m thankful that Moody’s listened.”
Nichols said the report notes that the fiscal 2016 budget closed a gap of about $1.6 billion by increasing recurring revenues, reducing the use of one-time funding sources to about $550 million and implementing cost savings.