Louisiana's rating outlook is now stable across the board thanks to work shoring up the state budget this year.
S&P Global Ratings Friday revised its outlook on the state’s general obligation bond rating to stable from negative and affirmed its AA-minus rating. S&P also confirmed its A-plus rating on the state’s appropriation bonds.
S&P’s action comes after state lawmakers in June voted to extend a portion of a 1% sales tax through 2025 to avoid steep budget cuts in the current fiscal year and beyond.
“The outlook revision reflects, in part, our view that the partial extension of a sunsetting sales tax will afford the state a measure of budgetary predictability, at least through its initial period,” said S&P analyst Oscar Padilla.
Padilla also said that the latest budget is the state's third spending plan that doesn’t use one-time resources for recurring expenses.
Gov. John Bel Edwards said S&P’s removal of the negative outlook recognized the “bipartisan work” by lawmakers in stabilizing the state budget during the third special session of this year.
“Today’s announcement from S&P is further evidence that what we did was right for Louisiana,” Edwards said. “For too long, our state lacked the stability and predictability we needed, but those days are over.
“We still have a long way to go, but with our economy growing, more people finding work, and our commitment to improve health outcomes and access to education, Louisiana is finally headed in the right direction,” he said.
Padilla said that while S&P’s short-term risk of recession odds remain low at 10%-15%, given uneven economic growth relative to the U.S. in the current expansionary period, “Louisiana remains acutely vulnerable to economic shifts, particularly in the export and energy sector.”
Weakening budget performance due to deteriorating economic conditions or policy shifts could cause downward rating pressure, he said. Sustained budgetary improvement and material progress toward maintaining reserves in line with constitutional limits could lead to upward rating potential.
In July, Moody's Investors Service cited the state’s stabilized budget while revising its outlook to stable from negative on Louisiana's Aa3 rating.
“We expect the state to continue to balance its budget with a preponderance of recurring actions but do not anticipate significant near- or medium-term improvements in its reserves, which will continue to fall short of a cushion commensurate with a volatile economic base,” said analyst Marcia Van Wagner.
While Fitch Ratings commented on the state’s budgeting problems the past few years, it maintained a stable outlook on the AA-minus rating it assigned to the GOs.
State Treasurer John Schroder welcomed S&P’s outlook revision on Friday.
“We've had several calls with the rating agencies over the past few months, and we were hopeful after our discussions that we would see an improvement,” Schroder said. “The better our ratings, the cheaper it is for the state to borrow money to pay for infrastructure and other projects.
