“In our view, political risk — as evidenced by the legislative gridlock during the special session — has emerged as a credit weakness, which has the potential to stunt what otherwise has been recent positive momentum in the state,” the agency wrote.
No move was made to downgrade the state’s credit rating, but the update signals such a threat could exist.
The three major rating agencies — S&P, Moody’s Investors Service and Fitch — all downgraded Louisiana’s credit rating in 2016 and 2017, making it more expensive to borrow money for roadwork and construction projects.
Edwards and others have warned if Louisiana doesn’t get its fiscal house in order, the state is at risk of another drop.
National rating agencies have repeatedly cited concerns about the impermanent nature of Louisiana’s financial base and about the looming expiration of more than $1 billion in temporary taxes when the new budget year begins July 1.
Edwards wanted lawmakers to pass replacement taxes in the special session to offset a portion of the expiring taxes, but the House deadlocked on all tax measures, scrapping the session early.
Republicans and Democrats disagreed on what tax types should be used and about how much money should be raised. Some GOP lawmakers, including House Appropriations Chairman Cameron Henry, said the session was premature until the state gets updated estimates for its revenue forecast.
A bump in income tax collections tied to federal tax changes is expected to lower Louisiana’s budget gap to around $700 million. But taxes can’t be considered in the regular legislative session that starts Monday, so lawmakers will begin trying to make cuts to balance next year’s budget.
“Absent legislative fiscal measures, deep cuts across services and programs will invariably hallmark the state’s fiscal 2019 budget,” S&P’s analyst wrote.
Talks are underway between Edwards, Senate President John Alario and House Speaker Taylor Barras to end the upcoming regular session 10 to 20 days ahead of time, so lawmakers can convene another special session in mid-May to consider taxes to offset the budget hole.