Actions planned to solve the state of Louisiana's $487 million shortfall
are largely stop-gap measures, according to Fitch Ratings, and will not
address the state's persistent budget challenges.
The state recently announced a $370 million General Fund (GF) budget gap
in fiscal 2016 (4% of GF expenditures), which came on the heels of a
$117 million GF operating deficit for the fiscal year ended June 30,
2015. The combined $487 million shortfall continues a trend of budgetary
imbalance that has characterized state financial operations over the
past several years. Further, several actions are expected to increase a
projected fiscal 2017 GF budget gap, estimated at more than $1 billion
under current baseline assumptions, or exacerbate the funding gap in the
state's Medicaid program, estimated at $516 million as of October 2015
(inclusive of federal match dollars).
The newly elected governor will take office on Jan. 11, 2016, and Fitch
anticipates the governor and legislature will take up a discussion of
the state's budgetary challenges shortly thereafter, in concert with
consideration of a fiscal 2017 budget. These discussions could result in
replacing some of the stop-gap measures in fiscal 2016 with more
policy-driven solutions that would also reduce the budget gap
anticipated in fiscal 2017. Fitch will look for concurrence on recurring
measures that provide stability to financial operations. Actions that
result in additional fiscal stress or further reductions in fiscal
flexibility could lead to negative pressure on the state's rating. Fitch
currently rates Louisiana's general obligation bonds 'AA' with a Stable
The state attributes the fiscal 2015 operating deficit to
higher-than-expected corporate tax refunds and credits that were filed
late in the fiscal year in anticipation of the state's adjustment to
several tax credit programs enacted to support the fiscal 2016 budget.
The forecast of a current year budget gap results from the state revenue
estimating conference's (REC) November adjustment to the revenue
forecast. The adjustment lowered anticipated sales, corporate income,
and natural resource driven taxes, largely as a result of protracted
weakness in oil and natural gas prices that has extended beyond the
forecast underpinning the enacted budget.
Fitch believes the state's newly revised oil price per barrel forecast,
at $48.02 per barrel, is a reasonable expectation for fiscal 2016 given
current oil price trends. The state estimates that 13% of its revenues
are derived from production of its oil and natural gas resources;
however, this figure is not inclusive of economically-sensitive revenue
sources such as personal income and sales taxes. These revenue sources
have been impacted by the current downturn in these industries that has
increased unemployment and reduced consumer purchases.
One-time measures to close the identified GF budget gap in fiscal 2016
include fund balance sweeps, Medicaid payment deferrals, application of
retroactive federal disproportionate share reimbursements, and an
expected $28.2 million appropriation from the state's rainy day fund
(RDF); the RDF currently totals $514 million (6% of fiscal 2015
expenditures). Fitch believes these one-time actions do not address the
persistent underfunding of the state's Medicaid program and other state
expenditures, such as higher education tuition assistance.
Additional information is available on www.fitchratings.com.
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AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
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CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
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Copyright Business Wire 2015
Source: Business Wire
(December 3, 2015 - 3:27 PM EST)
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