Louisiana's Budget Crisis Spurs New Warning

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BRADENTON, Fla. - Louisiana's projected $750 million current general fund budget deficit and an estimated gap of $1.9 billion in fiscal 2017 is credit negative, according to Moody's Investors Service.

The state closed a $500 million current-year shortfall with a series of non-recurring actions that were completed in early December, though a $190 million deficit due to Medicaid spending was not resolved, Moody's said in a comment Monday.

The new projected funding shortages were based on actual revenue collections in November.

"The new shortfall is credit negative for the state, which has a narrow window to resolve its widening deficit before fiscal 2016 ends," said Moody's analyst Marcia Van Wagner.

Moody's rates the state's general obligation bonds Aa2 with a negative outlook.

Louisiana's fiscal year ends June 30, giving Gov. John Bel Edwards little time to address the current budget crisis, Moody's said.

Edwards, a Democrat who took office Jan. 11, is expected to release budget proposals this week.

A special legislative session to address budget issues is expected to be called for Feb. 14 to deal with the current-year deficit, Moody's said.

"For fiscal 2016, measures will need to be particularly aggressive if a $750 million gap is to be closed" by year's end, Van Wagner said. She said some expense reductions, such as those related to education spending, are restricted by constitutional requirements.

Other options could consider include redirecting some of the state's statutorily dedicated funds to the general fund, raising sales taxes or eliminating tax exemptions, according to Moody's.

"If the state redirects its statutory dedications, it risks worsening its overall liquidity position," Van Wagner said.

Some of Edwards budget proposals, particularly for fiscal 2017, are expected to be based on his Transition Committee on Fiscal Matters, which released a 25-page report last Thursday.

The committee proposed a number of options designed to increase state revenues that included reducing all of Louisiana's income-tax rates if the voters agree to eliminate the deduction for federal income taxes and certain other deductions.

Standard & Poor's and Fitch Ratings also have warned Louisiana that the state's GO credit rating is being pressured by budget problems.

S&P has a negative outlook on its AA rating, and Fitch has an AA rating and stable outlook.

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