Fitch Ratings, Moody's Ratings, and S&P Global Ratings say Louisiana's recently adopted tax changes should address what had been projected to be
Revenue projections never pan out to be 100% accurate, and that is particularly true when there have been major tax changes, said Eric Kim, Fitch Ratings head of U.S. states ratings.
The state's Revenue Estimating Conference increased the projection for fiscal 2026 revenues to $12.151 billion from $11.704 billion in December based on the tax and spending changes.
"Based on the forecast, the revenues would largely cover the projected deficit, in combination with expenditure reductions," said Denise Rappmund, vice president and senior analyst at Moody's.
In recent years Ohio and Arizona governments projected revenues would be higher than they turned out to be after tax changes, Kim said.
Even if tax revenues fall short of projections, Kim said, the government would make necessary changes to achieve stability.
The sales tax increase that started on Jan. 1 will more quickly manifest revenue changes than the other tax changes, Kim said. However, it will be a full year before Fitch will be able to judge the tax change's full impact, which also included substantial income tax cuts.
Sales tax revenues were down about 4% through November, which was before the tax changes went into effect, Rappmund noted. However, the new tax policies increase the sales tax rate and widen the scope of items on which sales tax is collected and should improve sales tax revenue in fiscal 2026, which starts July 1.
"Louisiana's revised fiscal 2026 estimates are, in our view, reasonable. The upward revision in 2026 to $12.151 billion represents a marginal increase of 0.3% compared with current FY 2025 estimates of $12.109 billion," said Rob Marker, associate director at S&P. "We also note that through November, FY 2025 cash receipts of $4.8 billion are only 1% below actual 2024 receipts."
"Should revenue miss forecasts, we note that LA's institutional framework empowers the governor to quickly implement budget cuts to maintain structural balance," Marker said. "There is also a constitutional requirement to pass balanced budgets and formalized budget-monitoring processes, which should further support financial stability."
Rappmund said, "We are keeping a
The recently passed tax changes raise the sales tax to 5.00% until 2030 when it is set to decline to 4.75%, Kim noted. The government is also delaying $300 million per year transfers from the general fund to the transportation fund for two years to ensure the general fund will be balanced. Gov. Jeff Landry hopes the current round of tax changes will strengthen state economic activity, leading to increased tax revenues that will allow the sales tax decrease and transfers to the transportation fund in outyears.
Key state officials will meet with Fitch in the next two months to
Federal tariff policies are another concern for the state's government, Kim said. With President-elect Trump's promise to impose tariffs on a wide range of imports, other countries are likely to also impose tariffs on imports from the United States and that may affect the state's exports. The tariffs will also affect the cost of imports. Both developments would affect the state's economy, Kim said.
Moody's rates the state's GO bonds Aa2 and Fitch and Kroll Bond Rating Agency rate them AA.
