(The Center Square) — One of the major credit ratings agencies has given Louisiana upgrades on its bonds, which means taxpayers could pay less to borrow money.
S&P Global Ratings increased its long-term and underlying ratings on general obligation bonds from bonds to AA from AA- and appropriation-backed debt to AA- from A+.
These ratings determine a state’s credit worthiness and can play a factor in how expensive it is for governments to borrow money for projects via the bond market.
S&P ratings range from AAA, which is the top rating, to D, which is the worst. According to the S&P guide, an AA rating is defined as “Investment Grade: Very strong capacity to meet financial commitments.”
The ratings agency also upgraded ratings on bonds on the state’s gasoline and fuel tax to AA from AA- and reaffirmed the state’s dual bond rating of AAA/A-1+.
The agency also gave proposed Louisiana general obligation bond issues of $288.6 million and $95.6 million ratings of AA.
“The upgrades reflect our view of Louisiana’s demonstrated commitment to improving and maintaining reserves above levels that we consider very strong and the state’s ongoing effort to reduce unfunded pension liabilities through its strong pension funding discipline,” said S&P Global Ratings credit analyst Rob Marker in a news release. “We view both Louisiana’s strong reserve balance and its long-term commitment to funding its pension liabilities as generally sustainable provided enhancements within the state’s constitution dedicating funds to reserve accounts and unfunded liabilities.”
Analysts from S&P said the state’s structurally balanced budget and strong reserves, as evidenced by Gov. Jeff Landry’s fiscal 2025 proposed budget that recommends modest decreases in spending, helped boost the state’s ratings.
Plaudits were also given for defined benefit pension system and a constitutional requirement to use surplus revenues to unfunded liabilities.
Analysts did cite the state’s population decline, low personal income levels and gross state domestic product as compared to the rest of the U.S. as causes for concern.
According to S&P, the state’s general fund was in the black for the seventh consecutive year, finishing with a $325.4 million surplus. Under the Louisiana Constitution, lawmakers are required to transfer at least 25% of any general fund surplus ($81.4 million in fiscal 2023) to the state’s rainy day fund while 10% must go to unfunded liabilities ($32.5 million in 2023).
Starting in fiscal 2025, the 10% requirement for surplus revenue to be transferred to pay down unfunded liabilities was increased to 25% via constitutional amendment.
The state now has a reserve fund of more than $3 billion, which amounts to 27% of the state’s estimated fiscal 2024 revenues, which S&P says is “well above levels that we view as very strong.”