BRADENTON, Fla. — Flood-ravaged, cash-strapped Louisiana spent nearly $13 million in one week responding to three days of torrential rain that brought devastation to one-third of the state.
The government's expenses from the Aug. 12-14 disaster in south Louisiana will "grow hugely" in the weeks ahead, Jay Dardenne, the governor's budget chief, told the Joint Legislative Committee on the Budget Thursday.
"I can't underestimate the magnitude of the recovery we are going to face," he said.
Gov. John Bel Edwards has said more than 40,000 homes were affected by the flooding, and that the state will spend whatever is necessary to help people who were displaced.
The disaster could compound the state's ongoing cash crunch, Dardenne said, advising the legislative panel that the state should move forward quickly with plans to issue up to $500 million in revenue anticipation notes.
The state will be strained to pay upfront for the costs of its response effort and repairs before the Federal Emergency Management Agency reimburses 75% of the expense, he said.
Louisiana has other options to finance disaster costs that FEMA will not cover, according to S&P Global Ratings analyst Nora Wittstruck.
The state can draw from the budget stabilization fund and under the constitution can finance natural disaster-related expenditures with general obligation bond proceeds, she said.
The stabilization fund balance was $358 million or 4% of general fund budgeted expenditures at the end of fiscal 2016.
"We consider this level good although it marks a decline from $470 million or 5.5% of general fund expenditures at the end of fiscal 2015," Wittstruck said. "In recent years the state has offset operating deficits and provided budget relief through reserve draws."
Wittstruck also said the state will not experience immediate credit rating deterioration "until we understand the magnitude of expenditures related to the flooding and determine the state's resources from which it could finance such expenditures."
Congress could also provide budget relief to the state.
Louisiana's congressional delegation will ask Congress to approve reimbursing 90% of the state's disaster-related costs, Dardenne told the State Bond Commission in a separate meeting Thursday.
Additional federal funds and new bonding authority for infrastructure repairs are also possibilities, he said.
State Treasurer John Kennedy, who chairs the bond commission, asked for damage estimates as soon as possible to factor those costs into the amount of RANs the state will need to issue.
The bond commission gave preliminary approval to the $500 million deal. The final amount and terms will be discussed at the commission meeting in September.
The issuance of RANs primarily will deal with a cash-flow issue the state is about to experience because of a mismatch of incoming revenues to bills that need to be paid, according to Ron Henson, first assistant state treasurer.
Louisiana used to have $3 billion to $4 billion of borrowable interfund resources to cover cash flow needs, but that money is gone, Henson told the Joint Legislative Committee on the Budget.
"We are getting to the point that we're very close to not having borrowable resources on a daily basis," he said during a discussion about why the state must issue RANs for the first time in about 30 years.
The state, under Gov. Bobby Jindal, drew down treasury balances with fund sweeps and other actions.
S&P said Thursday that the Edwards administration has emphasized "a more structural approach" to balancing the budget without use of one-time funds, and has made progress enacting new revenue sources and cutting expenses during legislative sessions this year, she said.
"Despite this progress, the current reserve level provides narrow financial flexibility to offset unforeseen expenditures such as those resulting from the devastating flooding," Wittstruck said.
Louisiana's budget problems and vast clean-up effort unfolds just a few weeks before the state enters the bond market to fund capital needs.
Some $187 million of GOs are expected to price on Aug. 30.
The bonds are rated AA-minus by Fitch Ratings, Aa3 by Moody's Investors Service, and AA by S&P.
Moody's and S&P assign negative outlooks due to the state's budget problems and weak economy.
President Obama has issued major disaster declarations for 20 of the state's 64 parishes, some of which experienced 25 to 30 inches of rainfall Aug. 12-14.
An estimated 4,000 people remained in shelters Thursday, down from a peak of 11,000. At least 13 people died.
More than 17,000 National Flood Insurance policyholders have submitted claims, although it is believed many more homeowners did not have flood insurance or were flooded in areas where flood insurance was not required.