Jeffrey D. Sadow is an associate professor of political science at Louisiana State University Shreveport. If you're an elected official, political operative or anyone else upset at his views, don't go bothering LSUS or LSU System officials about that because these are his own views solely. This publishes five days weekly with the exception of 7 holidays. Also check out his Louisiana Legislature Log especially during legislative sessions (in "Louisiana Politics Blog Roll" below).
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21.3.17
Edwards follows pattern with state debt downgrade
It shouldn’t be a surprise that Louisiana has
endured adverse credit rating changes since Democrat Gov. John Bel Edwards
assumed office, completing
a downgrade trifecta last week.
Over a year after Moody’s Investors Service
started the trend – just over a month after Edwards took office and had led the
Legislature into special session to deal with fiscal issues – followed by Fitch
Ratings months later, S&P Ratings completed the sweep of lowering the state’s
credit rating. Additionally, Moody’s reaffirmed its negative outlook, meaning
it anticipated more likely a downgrade to come in the future than the rating
maintaining, which at present makes Louisiana one
of the lowest rated states in the nation. Ratings assess the overall fiscal
health of an entity, where the healthier a government’s finances, the lower
interest rate lenders demand.
Moody’s commentary explicates well Louisiana’s
underperformance. Last
year, it noted reasons for the downgrade as “rapidly deteriorating revenue
collections due in part to the continuing low oil price environment, a looming
fiscal 2017 gap that could be as large as 20% of general fund revenues, and the
effects of years of structural imbalance on the state's reserves and liquidity.”
The negative outlook then came from “the state's continued budgetary risks and
the likelihood that movement toward structural balance is likely to take time …
also … revenue forecasting risks, Medicaid cost containment implementation
risks, and uncertainty over attainability of budget balancing initiatives.”
A
year later, with Louisianans socked with hundreds
of millions of dollars in health care tax increases to pay for Medicaid
expansion and billions more in general tax increases, the situation
remained mostly unchanged, according to Moody’s latest communique: “The
negative outlook … reflects continuing risks regarding a fiscal cliff looming
in fiscal 2019 as tax increases roll off, uncertain revenue forecasts,
implementation challenges and legislative reluctance to enact significant
changes to the state's revenue structure.”
Naturally, Edwards drew the wrong conclusion in
his remarks
about last week’s developments. True, he acknowledged “structural tax and
budget reform is critically important for our state’s future,” but then erred
by linking this to changes that “also bring in sufficient revenue to support
the state services a vast majority of state legislators believes is important
to maintain for their constituents.”
Whether a “vast majority” of legislators would
answer his clarion call to squeeze more money out of Louisianans, likely
disproportionately a minority of the population, in order to pay for services
or tax breaks of little actual need, is at best dubious. Note the entire
absence of any offer to cut spending and remove counterproductive breaks; this
from the man who last year considered
spending at a level nearly $900 million more than today would lead to
catastrophe and yet state government chugs along with almost no ill-effects
from putting big government on a partial diet, mostly against his will.
But, perhaps more interestingly, the downgrades
have continued a historical pattern where these typically occur with big
spending Democrats while Republican governors who tried to shrink government’s
footprint saw upgrades during their tenures. Since 1972,
looking at S&P Ratings, Democrat chief executives suffered downgrades in
1984, 1986, 1987, 1995, 2005, and 2017, while their Republican counterparts
enjoyed upgrades in 1990, 2000, 2003, 2008, and 2011. The only outlier came with
1988’s downgrade early in Republican former Gov. Buddy
Roemer’s first year in office after inheriting the worst budgetary mess in
the state’s history from Democrat former Gov. Edwin
Edwards.
This speaks volumes about governance, where the
only time a tax increase figured in an upgrade was in 2003 with change that
increased income taxes more than it reduced sales taxation on items for home
consumption. Repeal of the higher income tax rates roughly coincided with the
2008 upgrade.
And it leaves us with the same lesson: you cannot
tax and spend your way to sound fiscal health. Rather, right-sizing government
produces the best results – which Edwards stubbornly refuses to acknowledge.
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