DALLAS -Standard & Poor's raised its ratings on Louisiana's state debt Tuesday, moving the state's general obligation to A-plus from A, and to A from A-minus for the state's appropriations-backed debt.
The increases were the third positive move by the agency for bonds issued by the state since November 2005, when Standard & Poor's lowered the ratings for Louisiana's GO debt from A-plus to A and for the appropriations-backed debt from A to A-minus. The downgrades came in the wake of the widespread devastation in the state resulting from hurricanes Katrina and Rita in August and September 2005.
"It's the first ratings upgrade, but over the past three years we've raised Louisiana from negative to stable and took the state off a credit watch," said Paul Murphy, an analyst for Standard & Poor's in New York.
Louisiana's GO debt is rated A2 by Moody's Investors Service and A by Fitch Ratings.
State Treasurer John Kennedy said Louisiana earned the ratings upgrade.
"I'm pleased, but I think this is deserved," he said. "For the most part, the state is spending money on things that Louisiana needs, and our economy is very solid."
Kennedy said he is hopeful that upgrades from the other rating agencies will follow the move by Standard & Poor's.
"We had a good legislative session," he said. "In fact, the last three, including the two special sessions, have been outstanding. Our Legislature and our governor have been very responsible, matching revenues with our expenses."
The rating action results from Louisiana's planned fall sale of $200 million of GO variable-rate demand refunding bonds. The bonds have been given a joint-support triple-A based on an irrevocable, direct-pay letter of credit from BNP Paribas and the state's GO pledge.
The GO refunding bonds are a portion of the approximately $500 million of GO bonds the state expects to issue in fiscal 2009 for capital outlay efforts.
Murphy said the upgrade is due to continued strong revenue performance and budget discipline in the aftermath of the 2005 hurricanes.
"Billions of dollars in hurricane restoration efforts, including funds from the federal government, private insurers, and by individual citizens, have really primed the pump in Louisiana," Murphy said. "The state government has taken advantage of that recovery through sales and income taxes, and the question will be if they can sustain it beyond the near term."
Murphy said the economic benefit from the hurricane recovery should last for at least two more years.
"Whenever someone decides to rebuild, they hire local labor and purchase materials and equipment from local businesses," he said. "That money gets cycled throughout the economy."
Higher oil and gas prices are helping rather than hurting the state's economy, he said.
The state and local governments could feel some constraint from higher energy prices, Murphy said, but employment and expenditures by Louisiana's energy industry should provide an overall statewide benefit.
"The energy industry pays high wages, which raises the state's income tax revenue, and money that goes into workers' pockets will eventually be spent, which increases the sale tax revenues," he said.
High energy prices also boost the state's severance tax revenue, Murphy said. The tax is based on the price of oil and gas rather than the produced volumes.
"Activities relating to hurricane recovery and oil and gas extraction have bolstered Louisiana's tax collections, mitigating financial concerns in the short term," Murphy said. "In the past three years, the state has prudently managed surpluses by allocating them to one-time expenditures or to recurring items that are affordable."
