BRADENTON, Fla. — Moody’s Investors Service yesterday said the Deepwater Horizon oil spill may ultimately result in negative credit impacts on state and local governments in Louisiana, Mississippi, Alabama, and Florida.
“The spill is likely to cause extensive environmental damage to the states that border the Gulf of Mexico,” said a nine-page special report principally authored by Moody’s senior credit officer Edith Behr.
Any rating or outlook changes would follow careful assessment of the spill’s impact on taxable property values, property tax levies, revenue performance, state aid, and timely debt service repayment, the report said.
Since BP has pledged to pay for all cleanup costs, as well as damage claims, and the federal government has pledged significant resources, Moody’s said it appears the long-term economic and financial impact of the spill on Louisiana, Mississippi, and Alabama will be manageable.
“Of all the Gulf Coast states, Florida has the largest coastline and an extremely fragile ecosystem which puts it at significant economic risk depending on the migration pattern of the massive oil slick in the Gulf of Mexico,” Moody’s warned.
Oil has spewed from the sunken rig since an explosion that killed 11 workers on April 20. Several attempts by BP to cap the flow have met with limited or no success as the plume of oil continues to expand and move closer to sensitive shorelines.
As the oil spill approaches Louisiana’s coastal wetlands, the potential effects on the environment could be disastrous, although favorable wind conditions may aid in controlling the impact, Moody’s said.
Louisiana’s liquidity was solid with over $5 billion in cash balances as of Dec. 31 in borrowable funds to the general fund, so its ability to absorb the short-term costs associated with the oil spill are strong, according to Moody’s.
Florida, which does not have a state income tax, relies significantly on sales taxes, “particularly those derived from tourism which has suffered during the current recession,” the agency said. “The state’s high dependence on tourism dollars and jobs is significant and a gradually worsening disaster associated with any part of Florida’s 1,197 coastline miles could likely have long-term implications even greater than the recent global recession or Hurricane Ivan in 2004.”
While no oil is known to have lapped up on any Gulf beaches in the four weeks since the spill began, the initial economic damage began almost immediately with tourists cancelling vacation plans and fishing trips.
On Monday, BP announced it would provide $25 million to Florida and $15 million each to Alabama, Mississippi, and Louisiana for tourism promotions to help mitigate the economic impact.
But shortly after that announcement, park rangers discovered 20 tar balls on the shore of Key West on the southern tip of Florida. The tar was sent to a laboratory to determine its origin while the Coast Guard urged people not to speculate about whether it came from the Deepwater Horizon spill.
However, experts in a conference call with reporters yesterday said that the environmental impact may be incalculable and they expect chronic and long-term negative effects on the Gulf’s vast ecosystem that supports thousands of species of wildlife, mammals, and fisheries.
The spill is unprecedented because there has never been a substantial leak a mile below the surface, so understanding the effects will be difficult, said Steve Murawski, director of scientific programs for the National Oceanic and Atmospheric Administration.
“We all know this spill will affect fish and wildlife resources potentially for years and potentially maybe for decades,” said Rowan Gould, the acting director of the U.S. Fish and Wildlife Service.
Scientists said they are already seeing elevated mortality rates among birds, sea turtles, and bottlenose dolphins, although they have yet to determine how many succumbed to oil and the chemical dispersants used on the spill.