- Associated Press - Monday, February 2, 2015

BATON ROUGE, La. (AP) - A national credit rating agency warned Monday that Louisiana’s budget has a “structural deficit” that has been worsened by falling oil prices, an update the state’s treasurer worried could be the harbinger to a credit rating downgrade.

Moody’s Investors Service, which tracks state financial issues and issues credit ratings that determine interest rates, issued a “credit negative” report on Louisiana that described how the deep dive in the oil price has deepened the state’s financial woes.

Treasurer John Kennedy called the write-up a sign that the rating agency is closely following state budget troubles to determine if its credit rating should be lowered.

“I read this as a warning shot,” Kennedy said.

Louisiana has a $1.6 billion budget shortfall for the fiscal year that begins July 1, threatening colleges and health services with steep slashing.

Most of the shortfall is tied to the use of more than $1 billion in patchwork funds that were used to pay for ongoing services this year, but that are slated to disappear next year. The problem has been deepened by the oil price drop, which was the driver of Moody’s two-page update on the state’s financial problems.

The rating agency said balancing next year’s budget will be “especially challenging” because of a dwindling set of reserve funds.

Moody’s said the issuance of its report doesn’t suggest the state is in imminent threat of a credit rating downgrade, which would drive up the costs of state borrowing for construction projects and highway work.

“It’s not necessarily an indicator that there’s some rating action pending,” said Marcia Van Wagner, the Moody’s analyst who wrote the Louisiana update.

When questioned about factors that are considered for credit ratings, she said: “If the budget problems continue to worsen, that’s a red flag in terms of the rating.”

Kennedy has criticized the continued use of patchwork financing in the budget by Gov. Bobby Jindal and lawmakers, saying the nation’s credit rating agencies don’t look kindly on such “budget gimmicks.”

The governor’s top budget adviser, Commissioner of Administration Kristy Nichols, downplayed the risk asserted by Kennedy. Her office said Moody’s has upgraded Louisiana’s credit rating twice since Jindal took office in 2008, and so have other credit rating agencies.

“We currently have the highest ratings we’ve had in two decades. While the decline in oil prices has created a challenging situation, we are going to make the reductions necessary to balance our budget and maintain our rating,” Nichols said in a statement.

Despite the upgrades, however, Louisiana’s rating from Moody’s remains below the average of other states.

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