Governor John Bel Edwards released a statement calling the downgrade of Louisiana’s credit rating a disappointing development. The governor says he figured “Moody’s Investor Services” would wait until the end of the special session to make a decision.
South Louisiana Community College Economic Professor Dr. Mamta Misra says the one notch drop isn’t as bad as it sounds. However, it’s a solid message that the state needs to gets its finances in order. “This lowered credit rating means we are marginally less credit worthy, not as reliable, that we might not marginally be able to pay our debt. It doesnt mean we won’t. It’s just Moody’s way of saying okay fix it up,” says Dr. Misra.
In a nutshell, a state’s credit rating works much like an individual credit report. Dr. Misra says the state’s cost of borrowing money for things like road projects will probably go up. “we’re just a little bit less credit worthy that’s what Moody is saying,” says Misra.
The Chief Financial Officer for Lafayette Consolidated Government says a rating downgrade is never good, but it’s not devastating for Lafayette. “So, we’re looking at some reductions in somethings that we could do just in case the rating agencies come for a visit. We want to be proactive instead of reactive. Like I said, just because the state is downgraded doesn’t mean it’s going to automatically affect us,” adds Toups.
Toups says Lafayette has a strong fund balance. However, sales tax revenue is down in the parish. She says that’s a concern. “A lot of our bonds are funded from sales tax. We need to make sure we have good sales tax coverage so our bond rating doesn’t go down,” explains Toups.
“A psychological impact of people in terms of pride for the state such as the fact that your state just got downgraded. Other than that I don’t think there’s an impact on personal lives of the people of Louisiana,” adds Dr. Misra
According to Moody, the negative outlook reflects the state’s continued budgetary risks and that the state’s movement toward structural balance is likely to take time – especially in a low oil price environment.