Louisiana's Borrowing Practices over Past 6 Years Will Cost the State Millions

Louisiana's borrowing activities over the past six years, which helped address General Fund shortfalls, will result in the state paying nearly a quarter of a billion dollars in additional interest over the next 20 years, push the state closer to its debt limit, and restrict the state's borrowing capacity for capital outlay projects through 2024, the state auditor said in a report released today.

The report found that the state will have to pay an extra $71 million in interest related to $210 million in bond premiums the State Bond Commission used to make debt payments between fiscal years 2011 and 2016 and to help reduce the General Fund deficits. The state also will have to pay back the $210 million.

In addition, the state could have saved $160 million in interest payments by using $335 million in non-recurring revenue to directly fund capital outlay projects. Instead, the Commission approved the use of the $335 million to defease bonds, which reduced the state's required debt payments in fiscal years 2015 and 2016, as well as the General Fund deficits.

Between fiscal years 2011 and 2016, the Commission approved new capital outlay projects faster than it can sell bonds to pay for them, which has resulted in a $3.7 billion backlog and reduced the capacity for new projects until fiscal year 2024.

The state also could face a downgrade in its credit rating because of its use of one-time monies, including bond premiums and defeasances that used non-recurring revenues. Such a downgrade would increase the state's borrowing costs and decrease the amount the state could afford to borrow each year.

In his response to the report, State Treasurer John Kennedy, who is chairman of the Bond Commission, generally agreed with the findings but said the Legislature and the Governor determine how bond premiums are used, not the Commission, while the Division of Administration controls the timing and flow of capital outlay projects.