BRADENTON, Fla. – Louisiana now pegs its official mid-year deficit at $304 million, and although it's lower than projected a week ago the number is complicating the state's ability to issue new debt.
The estimated shortfall has dropped by $9 million due to a recalculation by the treasurer's office of funds needed for debt service payments though the end of the fiscal year, according to Commissioner of Administration Jay Dardenne.
Gov. John Bel Edwards has said that he plans to ask the Legislature to dip into the state's rainy day fund to close $119 million of the deficit, and that he will call a special session to deal with the remaining gap.
Two-thirds of lawmakers in both chambers must approve using reserves, and some House Republicans have said they plan to vote against it.
The deficit, due to lower-than-anticipated collections into the general fund, has now been adopted by the revenue estimating conference and will factor into the state's debt capacity, the State Bond Commission said Thursday.
The deficit will lower the amount of new bonds the state can issue from about $350 million to $185 million in fiscal years 2018-2019, said the state's financial advisor, Renee Boicourt with Lamont Financial Services.
Instead of issuing 20-year bonds with level debt service, as is the state's tradition, the commission could boost the issuance amount to $210 million by structuring transactions to push principal payments in 2018-2019 to later years, she said.
"It's not an unusual practice for states as a matter of course to try to smooth it out," Boicourt said. "It's different from taking a bunch of debt and putting it at the back end where interest rates are higher."
The commission took no action on the debt capacity report or how future bond issues will be structured.
Louisiana typically issues debt twice a year to reimburse capital outlay expenses from a list of state and local projects approved annually by the Legislature and the governor.
Adding to the pressures caused by the deficit, Rep. Neil Abramson, D-New Orleans, said the capital budget is "significantly short" of available funds.
"We have between four and five times more projects approved for cash this year than we have any way of coming up with in borrowing," Abramson, a bond commission member, said as the panel discussed the upcoming issuance of $275 million of general obligation bonds.
The deal, slated for March, will provide $156 million to reimburse capital expenses already paid out and $119 million to provide advance funding for some projects. Advance funding is rarely done by the state.
Abramson questioned whether the commission should pre-pay for projects because that would shrink the remaining debt capacity for other projects.
He also questioned if state agencies and universities that are building new projects are aware that they may be facing operating budget cuts because of the deficit.
"That is the challenge we face," said Dardenne, who is also a member of the bond commission.
The commission deferred action on the GO bond deal and told staff to report on the pros and cons of doing a smaller deal in March by removing the advance-funded projects.