BRADENTON, Fla. - Standard & Poor's affirmed Louisiana's AA rating and stable outlook but warned that the state should find structural solutions to its budget challenges.

Those challenges include operating deficits the past five years and a low, 58% funding level of the state's four pension plans for a liability of $19 billion, S&P said in a credit review Thursday.

The state has $3.5 billion of outstanding general obligation debt.

"In our view, the state's ongoing focus on structural solutions to budget challenges will be a key determinant of its future credit stability as will its ongoing efforts to restructure and reform government, restore the budget stabilization fund, and adhere to sound debt management practices," said Standard & Poor's analyst Sussan Corson.

S&P noted that Louisiana has "low available general fund operating reserves at about 3% of expenditures" when budget stabilization funds are included.

Corson said S&P's continuing credit concerns are the low funding level of the state's pension plans, relative to other states, and its large liabilities for other post-employment benefits.

"We view the state's OPEB risk to be elevated relative to other states due to Louisiana's above-average liability and the state's pay-as-you-go funding," which represented 51% of its annual required contribution in fiscal 2013, said Corson.

Louisiana has one state-administered retiree health care plan and a life insurance program. The unfunded OPEB actuarial liability was $5.4 billion as of July 1, 2012, the most recent valuation date.

In 2008, legislators created an OPEB trust, though it had not been funded by the end of 2013, according to S&P. The recommended OPEB contribution in fiscal 2013 was $362 million to amortize the unfunded liability in 30 years, of which the combined employers paid about $186 million as pay-as-you-go financing.

On a positive note, the rating agency said Louisiana's "strong financial management practices" help it make timely budget adjustments.

"We do not expect to raise the rating within the outlook's two-year period because of the continuing structural budgetary challenges the state faces, including its underfunded pension systems," Corson said. "We could consider lowering the rating if Louisiana does not align its revenues and expenditures on a timely basis as we expect as part of our current rating outlook."

Louisiana GOs are rated AA by Fitch Ratings and Aa2 by Moody's Investors Service. Both assign stable outlooks.

The 2014 legislative session, which starts Monday and runs through June 2, is not expected to address major pension reform. However, bills have been filed to give most retirees a 1.5% cost-of-living increase, and to raise the retirement age to 62 from 60 for most employees hired after July 1.

Gov. Bobby Jindal recommended a $24.9 billion budget for fiscal 2015.

The spending plan is 2.43% lower than the current budget mostly because of decreased federal funding. The budget also proposes $293.2 million of long-term bonds and $80.4 million of short-term financing for local and state projects.

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