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Louisiana Upgrades Weather Gustav

DALLAS - Hurricane Gustav battered Louisiana earlier this week, but the Labor Day storm did not endanger the recently upgraded ratings for the state's general obligation and tax-supported bonds.

Gustav came ashore about 70 miles southwest of New Orleans on Sept. 1 with winds over 100 mph. All 64 parishes in the state declared a state of emergency, and 17 parishes in southern Louisiana ordered mandatory evacuations.

Residents are returning to the Gulf Coast, said state Treasurer John Kennedy, with the restoration of power being the most important task.

"We took a hard lick, but it was not a knockout," he said. "We'll work through it. We're already in better financial shape than we were the day after Katrina in 2005."

Damage estimates are still sketchy, Kennedy said, but even initial reports show the storm damage is much less than from the 2005 hurricanes.

"I've flown over the area with the governor, and while there is a great deal of damage - mostly wind damage - it is not as extensive as it was with Katrina or Rita," he said. "I've seen estimates of the total damage that range from as low as $2 billion to as high as $15 billion. That's a lot of money, but it isn't even close to the $80 billion toll from Katrina."

Kennedy said he discussed the situation in Louisiana in telephone calls on Wednesday with analysts at the three rating agencies.

"I told them the whole story - good, bad, and indifferent," he said. "I told them the facts, and talked with them about our plans to fix it."

Ratings on the state's general obligation and tax-supported debt were upgraded in July.

Standard & Poor's moved Louisiana's GO rating to A-plus from A and the tax-supported debt from A-minus to A. Moody's Investors Service raised the GO rating to A1 from A2 and tax-backed debt to A2 from A3. Fitch Ratings raised Louisiana's GO debt to A-plus from A, and the tax-supported debt to A from A-minus.

Analysts at the three ratings agencies said although some areas reported major damage, the storm's overall impact will be slight compared to the devastation caused by hurricanes Katrina and Rita in August 2005.

"Our perspective is that the damage is certainly less severe than with Hurricane Katrina," said Doug Benton, vice president and senior credit officer in the Dallas office of Moody's. "We anticipate that any rating adjustments would be on a case-by-case basis."

Benton said Louisiana did not experience extensive flooding this time as it did in 2005 when the storm surge from Hurricane Katrina overwhelmed the levees in New Orleans.

"There are a couple of things in play this time," he said. "The storm waters are receding, and there has been a declaration of which parishes will be eligible for federal and state assistance."

Richard J. Raphael, a credit analyst with Fitch in New York, said Louisiana has significant financial reserves it can rely on to smooth out temporary declines in tax revenue and meet restoration expenses.

"Louisiana goes into the recovery process with strong financial support, and large balances in its reserve funds," Raphael said. "The state had a surplus of $700 million in the fiscal year that just ended that has not been allocated.

"There shouldn't be significant revenue losses, and the state could receive reimbursement from the federal government for 100% of its recovery and restoration costs."

Gustav was a significant hurricane, Raphael said, but was not as strong as officials feared as the storm made its way through the Caribbean and Gulf of Mexico.

"The impact was not as severe when it landed as had been anticipated," he said. "There was some disruption, but Gustav's impact financially will be much more moderate than was the case with Katrina."

Steve Murray, senior director for public finance in Fitch's Austin office, said he doubts the storm damages will affect local government credits.

"It looks like typical hurricane damage," Murray said. "Based on what I've seen and heard, I don't anticipate any impact on New Orleans' credit. We haven't really spoken to the local governments in southern Louisiana yet. We want to give them the chance to get back in and get things running again."

Standard & Poor's analysts Sarah Smaardyk, Peter Murphy, and Alexander Fraser said the storm damages will not affect Louisiana's GO bond ratings.

"Any loss of oil and gas revenues is expected to be temporary and will be more than offset by the strong performance of mineral severance tax revenues due to higher global oil and gas prices," the analysts said. "The state's strong financial management and good revenue and budget performance over the past three years provide stability to the rating."

The storm did cause schools to close across the state, and a delay in Saturday's scheduled party primary elections.

State Superintendent of Education Paul Pastorek said that 60% of the 70 public school districts in Louisiana will remain closed until Monday.

Districts in northern, western, and southwestern Louisiana reopened on Thursday, Pastorek said, but schools in several parishes, including Assumption and St. Martin, are expected to remain closed until later next week.

"There are some locations that have been too heavily devastated and continue to be pelted with rains and tornadoes, and it is just too early to tell when schools in several parishes can reopen," Pastorek said.

New Orleans public schools reported only minor wind and water damage from Gustav. Damages from Katrina to the city's public schools topped $1 billion.

Secretary of State Jay Dardenne postponed Saturday's party primary elections on Tuesday due to the storm damage. No new date has been set.

Gov. Bobby Jindal asked President Bush to issue disaster declarations for 54 of Louisiana's 64 parishes on Tuesday, but the Federal Emergency Management Agency approved only the 34 parishes in the measure that Bush signed Tuesday night,

Jindal spokeswoman Melissa Sellers said the 20 parishes not included in the declaration sought by the state included St. Tammany, Tangipahoa, Washington, St. Helena, Calcasieu, and 15 northeastern Louisiana parishes.

Sellers said Jindal sent another letter to Bush on Wednesday seeking to include the 20 missing parishes, but no decision has been announced.

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