“Moody's is telling us that we'd better get our fiscal house in order or we are going to be downgraded, which will cost taxpayers,” Louisiana Treasurer John Kennedy said Feb. 2 in reaction to the rater’s credit negative status due to the state’s growing budget gap.

BRADENTON, Fla. - Plummeting oil and gas revenue collections in Louisiana are a credit negative for the state, according to Moody's Investors Service.

"Falling revenues from oil and gas extraction, which made up nearly 16% of fiscal 2014 general fund revenues, have compounded a gap the state faced at the outset of fiscal 2015," analyst Marcia Van Wagner said Feb. 2. "The shortfall is about $300 million on a cumulative basis, and the state faces a larger gap of as much as $1.6 billion in fiscal 2016."

In a mid-year review on Jan. 26, the state's revenue estimating conference lowered the state's estimated general fund income in large part due to the lower average annual estimated oil price of $69 per barrel, which is significantly lower than the conference estimated when the fiscal 2015 budget was adopted, Van Wagner said.

The latest REC forecast recognized some additional general fund sales tax revenues, but continued to include weakness in individual income tax collections, the rater said. Louisiana had muted job growth even before the oil price decline, and payroll employment grew just 0.8% in the first half of 2014, compared with 1.4% in 2013.

"Because Louisiana has a structural deficit, significant downward adjustments to revenues will make balancing the 2016 budget especially challenging," said Van Wagner. The fiscal 2015 budget was balanced with nearly $1 billion in one-time actions.

"Although the state has closed significant gaps in the past, its actions in recent years have diminished reserves and budgetary flexibility," she said.

Louisiana Treasurer John Kennedy released a statement Feb. 2 saying that Moody's negative outlook could be a precursor to changing the state's credit outlook to negative from stable or downgrading the state's Aa2 rating.

"Each year for the past seven years, we have spent more than we took in," Kennedy said. "We filled the hole with nonrecurring revenue, budget gimmicks, and pretend 'efficiencies' that never materialized."

Kennedy went on to say that the state has spent $830 million in the Medicaid Trust Fund for the Elderly, drained the state employee health insurance trust fund, and took money out of the tobacco settlement trust fund.

"Moody's is telling us that we'd better get our fiscal house in order or we are going to be downgraded, which will cost taxpayers dearly in higher interest rates on our bonded indebtedness," he said.

According to Moody's, Louisiana's rainy-day fund dwindled to $444.5 million in fiscal 2014 from $646 million in fiscal 2011, and its unassigned balances fell to $62.5 million from $112 million over the same period. The state has also drawn funds from various reserves, such as those held by the Office of Group Benefits.

Moody's said the state's liquidity has remained healthy despite the blows to general fund revenue collections. As of Dec. 31, the treasurer's office reported that borrowable fund balances for liquidity rose to about $2.7 billion from $2.3 billion a year earlier.

On Feb. 20, Gov. Bobby Jindal's administration will present detailed plans to cut $103 million from the state's 2015 budget to the Joint Legislative Committee on the Budget. The new cuts will be on top $180 million imposed in recent months.

The annual legislative session begins April 13. During the two-month session lawmakers will deal with the $1.6 billion budget gap.

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