Credit rating agencies will have final word on 2015 budget

In the coming weeks, Louisiana will receive a new grade from credit rating agencies that will determine our state’s borrowing costs. Like a credit rating you might get from your bank, the lower the credit risk to the bank, the less expensive it is to borrow money. As you many know, Louisiana borrows millions of dollars each year through the sale of state bonds. The proceeds of these sales are used to finance aspects of the state budget, most notably the construction budget appropriated through the capital outlay process.

With so much money at stake, the costs of borrowing significantly impacts the value of your tax dollar. The less expensive it is for Louisiana to borrow, the more we can do with the revenue the state collects. That means less money spent on interest payments and more spent on roads, schools, and health care.

How is this credit rating determined? By the objective fiscal health of the state, as measured through our budgeting process. As you can guess, that health report is probably not going to be great. Despite the Governor’s claims to the contrary we all know the state budget is a sickly mess.

That’s bad news for our credit rating.

In February, two major ratings agencies “moved the state from a “stable” to “negative” credit outlook.” That means they were forecasting worsening fiscal conditions. Now, as the 2015-16 budget has become law, the agencies will again review the state’s finances to determine the risk the state’s investment instruments pose to investors. As they’ve done the past, the rating agencies look closely at the viability of the budget over the long term. They consider the methods of state finance and determine whether the state has systemic risks that would threaten default in the future.

We will learn the results in the coming weeks.

This risk of downgrade, however, proves once again the lasting impact of failed fiscal policy over the past seven years. This election cycle does not mark the end of our budget issues, but only a new chapter in which we must work to repair the damage that has already been done.◊

– Karen Carter Peterson
La. State Senator

This article originally published in the July 13, 2015 print edition of The Louisiana Weekly newspaper.