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Louisiana Trying to Salvage Credit Rating

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State officials have been burning up the phone lines between Baton Rouge and New York City this week, trying to stave off the threatened downgrade of Louisiana’s credit rating. State Treasurer John Kennedy says it’s been intense.

“We’re in trouble. I don’t want to overstate that, but I don’t want to sugarcoat it, either,” Kennedy says. “We’re in trouble with two of the three rating agencies. Moody’s and Standard & Poor’s have told us unless we get our fiscal affairs in order, they’re going to downgrade us.”

Kennedy says the state’s rating is like an individual’s credit score. But he, Commissioner of Administration Kristy Nichols, and the chairmen of the legislative budget committees have been doing what most consumers couldn’t or wouldn’t—begging the credit rating agencies to wait on changing Louisiana’s credit score.

“We know we’ve been spending more money than we take in. We know we have a $1.6-billion deficit in next year’s budget. We know we’ve got to fix this problem, and the drop in the price of oil hasn’t helped,” Kennedy says the group admitted to the credit agencies.

And then, he says, they begged.

“Please don’t downgrade us. Give the Legislature a chance to do its job.”

Treasurer Kennedy says Louisiana’s credit rating—in the lower third of states—is crucial for two reasons:

“The better your rating, the less your taxpayers have to pay in interest,” Kennedy says is  first and foremost. “And when you’re borrowing billions of dollars, even half a percentage point can make a huge difference.”

Secondly, Kennedy says industries pay a whole lot of attention to a state’s credit rating, when they’re considering expanding or relocating their business.

“When you’re downgraded, it kind of sends a message to the business community: ‘Well, you know, they don’t know how to manage their money very well. Maybe we’d be better off going in some other state than coming to Louisiana’.”

The situation is so desperate that Governor Jindal got on the phone with Moody’s yesterday. A press release from his office describes that call as “productive.” The Treasurer says that may be an optimistic view.

“It took us 7 years to get into this mess. We’re not going to get out of it with just phone calls,” Kennedy observes.

And when asked what he thinks are Louisiana’s chances of avoiding rating downgrade before the legislative session, Kennedy responds:

“Will it work? I don’t know. We’ll start finding out early next week.”