Commentary

Government Streamlining, Fiscal Stewardship Prompts Upgrade of Louisiana’s Credit Rating

Notwithstanding concerns about how ratings agencies have handled Wall Street firms and certain financial products (see Anthony’s earlier post), the Big Three rating agencies remain a good and useful gauge of the fiscal health of state and local governments. As I’ve written before, the ratings agencies tend to view positively the use of privatization and other reform tools that aim to control spending and bring budgets back in to structural balance. From Louisiana comes another great example.

I’ve written extensively on the aggressive efforts to streamline government in Louisiana, initiated by Governor Bobby Jindal and supported by the state legislature. Ratings agency Fitch has also been watching and upgraded the state’s bond rating yesterday, a move that will yield more favorable interest rates for the state and produce millions in avoided interest costs over time. Notably, Louisiana has now become the only state that’s seen a credit rating upgrade this year by Fitch (the state was upgraded last year too) and it now stands at the highest level in Louisiana in decades.

But even more notable was the explanation of why Louisiana received an upgrade, and therein lie many lessons for other states. Per Gov. Jindal’s press release:

The upgrade marks the first time that Louisianaââ?¬â?¢s G.O. bonds have received a rating from Fitch above the single ââ?¬Å?Aââ?¬ range since Fitch began rating Louisiana in 1997. Last year, Fitch assigned an underlying rating of ââ?¬Å?A+ââ?¬ to Louisiana G.O. bonds, and upgraded the stateââ?¬â?¢s outstanding G.O. debt to ââ?¬Å?A+ââ?¬ from ââ?¬Å?A.ââ?¬ To date, the upgrade for Louisiana is also the only upgrade of the bond rating of any state by Fitch this year. This is the first time that the state has been in the double ââ?¬Å?Aââ?¬ category since the mid-1980ââ?¬â?¢s.

In its announcement, Fitch said the ââ?¬Å?upgrade to ‘AA-‘ from ‘A+’ reflects the strong financial management demonstrated by the state in recent years.ââ?¬ Fitchââ?¬â?¢s report cites recent actions of the state to maintain a balanced budget and sizable reserves like the rainy day fund. Fitch also ââ?¬Å?recognized the stateââ?¬â?¢s record of conservative revenue estimating in recent years and believes that the stateââ?¬â?¢s reserve position and focus on spending control support its ability to deal with future shortfalls.”

In addition, Fitch cited Louisianaââ?¬â?¢s creation of a streamlining commission and dedicated funding review among steps state government is taking to help address future general fund budget challenges, as well as noting the relative strength of Louisiana economic indicators like employment and job creation compared to the national economy and other states. […]

Governor Bobby Jindal said, “The upgrade sends a message that Louisiana’s business climate continues to improve and weââ?¬â?¢ve established an economic environment that is creating opportunity for our people. While weââ?¬â?¢ve made incredible progress through dozens of economic development wins, our work is not done yet. Todayââ?¬â?¢s bond rating upgrade will enable us to continue our strong economic momentum as well as attract and retain businesses so we can create even more jobs for our people.”

Commissioner of Administration Angele Davis said, “This upgrade is rather remarkable given the current condition of the national economy, but it just shows that Louisiana is moving in the right direction in terms of prudent financial management, fiscal reform, and strong economic progress compared to other states.”

State Treasurer John Kennedy said, “For the second straight year, a national credit rating agency has taken note of Louisiana’s fiscal discipline and economic progress in recent years. For Louisianans, the credit upgrade will mean more taxpayer savings, increased economic development, and more jobs.”

Translation: Louisiana is getting serious about spending reform and reducing the size and cost of state government, and the markets are taking notice. The work of the Commission on Streamlining Government and the parallel commission focused on higher education reformââ?¬â?in addition to the many other budget and fiscal reforms underway in Louisianaââ?¬â?apparently sent a clear signal to the markets that state policymakers recognize the imperative to rein in spending and check the growth of government in order to avoid the massive fiscal crises we’re seeing in many other states today.

Hopefully, taxpayers in Louisiana will realize that this isn’t just a pat on the backââ?¬â?Fitch’s rating upgrade will directly translate into real tax dollars saved over time. The state will be able to tap lower borrowing rates and pay less in interest than it otherwise would have.

And it should be a source of taxpayer pride in the Pelican State that at the same time other most states are seeing their credit ratings loweredââ?¬â?or at best, held flat as a consequence of their fiscal irresponsibility and/or inability to address gaping budget shortfallsââ?¬â?Louisiana is clearly viewed as moving in the other direction.

I’ve said it before and will say it againââ?¬â?while other states are talking or making some noise about the need to cut spending and streamline government, Louisiana’s actually doing it and is advancing what in my estimation is the boldest and most aggressive package of reforms in the country. There’s still a long way left to go in Louisiana before we see the ultimate fruition of the current reform work, to be sure, but so far that state is definitely far out ahead of the rest of the pack.

Ã?” Reason Foundation’s Annual Privatization Report 2009
Ã?” Reason Foundation’s Privatization Research and Commentary

Leonard Gilroy is Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.

The project aims to promote solvent, sustainable retirement systems that provide retirement security for government workers while reducing taxpayer and pension system exposure to financial risk and reducing long-term costs for employers/taxpayers and employees. The project team provides education, reform policy options, and actuarial analysis for policymakers and stakeholders to help them design reform proposals that are practical and viable.

In 2016 and 2017, Reason's Pension Integrity Project helped design, negotiate and draft pension reforms for the state of Arizona's Public Safety Personnel Retirement System and Corrections Officer Retirement Plan, which both passed with overwhelming bipartisan support in the state legislature and were signed into law by Gov. Doug Ducey.

Gilroy is also the Director of Government Reform at Reason Foundation, researching privatization, public-private partnerships, infrastructure and urban policy issues.

Gilroy has a diversified background in policy research and implementation, with particular emphases on competition, government efficiency, transparency, accountability, and government performance. Gilroy has worked closely with legislators and elected officials in Texas, Arizona, Louisiana, New Jersey, Utah, Virginia, California and several other states and local governments in efforts to design and implement market-based policy approaches, improve government performance, enhance accountability in government programs, and reduce government spending.

In 2010 and 2011, Gilroy served as a gubernatorial appointee to the Arizona Commission on Privatization and Efficiency, and in 2010 he served as an advisor to the New Jersey Privatization Task Force, created by Gov. Chris Christie.

Gilroy is the editor of the widely-read Annual Privatization Report, which examines trends and chronicles the experiences of local, state, and federal governments in bringing competition to public services. Gilroy also edits Reason's Innovators in Action interview series, which profiles public sector innovators in their own words, including former U.S. Transportation Secretary Mary Peters, former Florida Gov. Jeb Bush, former Indiana Gov. Mitch Daniels, former New York City Mayor Rudy Guiliani and more.

Gilroy's articles have been featured in such leading publications as The Wall Street Journal, Los Angeles Times, New York Post, The Weekly Standard, Washington Times, Houston Chronicle, Atlanta Journal-Constitution, Arizona Republic, San Francisco Examiner, San Diego Union-Tribune, Philadelphia Inquirer, Sacramento Bee and The Salt Lake Tribune. He has also appeared on CNN, Fox News Channel, Fox Business, CNBC, National Public Radio and other media outlets.

Prior to joining Reason, Gilroy was a senior planner at a Louisiana-based urban planning consulting firm. He also worked as a research assistant at the Virginia Center for Coal and Energy Research at Virginia Tech. Gilroy earned a B.A. and M.A. in Urban and Regional Planning from Virginia Tech.