NEW ORLEANS – When he was sworn into office on Jan. 11, Louisiana Gov. John Bel Edwards faced a historic $2.75 billion budget shortfall driven by a structural imbalance that spanned the past eight years.
Edwards, speaking here Thursday at the National Municipal Bond Summit, said he is committed to repairing the imbalanced budget brought on by years of mid-year cuts, fund sweeps and other "dishonest, irresponsible budget practices" that resulted in two rating downgrades this year.
"It will take some time to resolve these problems," he said. "They were not created overnight. We are going to overcome these challenges."
After taking office, Edwards called lawmakers into a special session where they passed a series of measures and eliminated a $940 million gap in the current budget.
However, a $750 million deficit remains in fiscal 2017 that, unresolved, could force hospitals to close and impose yet more cuts to K-12 and higher education as well as the state's popular scholarship program and agency funding, Edwards said Thursday.
The governor said his plan is to put Louisiana "back on a path to growth and stability."
That work is expected to begin in June when he calls a second special session to reexamine the budget and consider tax reform measures.
Edwards has already by executive order expanded Medicaid, a move expected to save the state $184 million in the first year. He also said the state will avoid future cost increases as a result of federal cuts in the program that pays hospitals for treating the uninsured.
The governor also outlined steps taken to overhaul state financing procedures to give more priority to transportation projects, he said.
The state also has a plan to address its pensions, which are about 60% funded, he said, adding that the funded status has been worsened by the Legislature underfunding annual contributions.
Edwards said he plans to ensure there is proper annual funding, although he doubted the state could move away from its defined benefit plan because it would be costly due to the fact that participants are not contributing to Social Security.
"I am extremely optimistic about the future of our great state," he said. "We are going to fix our problems."
Edwards also outlined steps taken earlier this year to resolve the current-year budget shortfall. Those included cutting $230 million, using some one-time money, dipping into the rainy day fund and receiving funds from the recent BP settlement.
The state also refinanced debt this week with a "scoop-and-toss" deal as part of the budget relief plan, and Edwards said the state received good participation from investors, indicating that they still have confidence in the state.
On Wednesday, Louisiana issued $425.8 million of tax exempt and taxable general obligation bonds at an all-in true interest cost of 2.34%.
The deal refunded bonds that were previously sold with a TIC of 4.82%, and netted present value savings of $12.7 million, the State Bond Commission learned at its meeting Thursday morning.
Most of the savings was taken upfront to delay $81.64 million of debt service payments due this year.
Although the state shortened the overall life of the transaction by two years compared to the refunded bonds, the new payment structure will require higher debt payments in 2020 and beyond, financial advisor Renee Boicourt with Lamont Financial Services told the commission.
