Louisiana Gov. Jeff Landry signed into law a bunch of tax and spending changes that rankings agencies say should address a projected deficit but whose effects bear watching.
Bloomberg News
Fitch Rankings, Moody’s Rankings, and S&P Global Rankings say Louisiana’s recently adopted tax changes should address what had been projected to be a $587 million or greater deficit in the approaching fiscal yr, however the tax changes’ revenue effects needs to be watched.
Revenue projections never pan out to be 100% accurate, and that is especially true when there have been major tax changes, said Eric Kim, Fitch Rankings head of U.S. states rankings.
The state’s Revenue Estimating Conference increased the projection for fiscal 2026 revenues to $12.151 billion from $11.704 billion in December based on the tax and spending changes.
“Based on the forecast, the revenues would largely cover the projected deficit, together with expenditure reductions,” said Denise Rappmund, vp and senior analyst at Moody’s.
Lately Ohio and Arizona governments projected revenues could be higher than they turned out to be after tax changes, Kim said.
Even when tax revenues fall in need of projections, Kim said, the federal government would make essential changes to realize stability.
The sales tax increase that began on Jan. 1 will more quickly manifest revenue changes than the opposite tax changes, Kim said. Nevertheless, it can be a full yr before Fitch will have the opportunity to evaluate the tax change’s full impact, which also included substantial income tax cuts.
Sales tax revenues were down about 4% through November, which was before the tax changes went into effect, Rappmund noted. Nevertheless, the brand new tax policies increase the sales tax rate and widen the scope of things on which sales tax is collected and may improve sales tax revenue in fiscal 2026, which starts July 1.
“Louisiana’s revised fiscal 2026 estimates are, in our view, reasonable. The upward revision in 2026 to $12.151 billion represents a marginal increase of 0.3% compared with current FY 2025 estimates of $12.109 billion,” said Rob Marker, associate director at S&P. “We also note that through November, FY 2025 money receipts of $4.8 billion are only one% below actual 2024 receipts.”
“Should revenue miss forecasts, we note that LA’s institutional framework empowers the governor to quickly implement budget cuts to keep up structural balance,” Marker said. “There may be also a constitutional requirement to pass balanced budgets and formalized budget-monitoring processes, which should further support financial stability.”
Rappmund said, “We’re keeping an in depth eye on federal spending on Medicaid or changes they might make to the funding of this program, which could disproportionately impact Louisiana given its high Medicaid enrollment and high Federal Medical Assistance Percentage.”
The recently passed tax changes raise the sales tax to five.00% until 2030 when it is about to say no to 4.75%, Kim noted. The federal government can also be delaying $300 million per yr transfers from the overall fund to the transportation fund for 2 years to make sure the overall fund shall be balanced. Gov. Jeff Landry hopes the present round of tax changes will strengthen state economic activity, resulting in increased tax revenues that may allow the sales tax decrease and transfers to the transportation fund in outyears.
Key state officials will meet with Fitch in the following two months to induce them to upgrade their general obligation bond rating to AA from AA-minus, State Debt Officer Jessica Munoz said Thursday.
Federal tariff policies are one other concern for the state’s government, Kim said. With President-elect Trump’s promise to impose tariffs on a big selection of imports, other countries are more likely to also impose tariffs on imports from america and which will affect the state’s exports. The tariffs may even affect the associated fee of imports. Each developments would affect the state’s economy, Kim said.
Moody’s rates the state’s GO bonds Aa2 and Fitch and Kroll Bond Rating Agency rate them AA.