Louisiana treasurer pushes back against proposed changes in Bond Commission’s role

Bonds

When it comes to issuing municipal bonds in Louisiana, state Treasurer John Fleming like things just the way they are.

Fleming is pushing back against a proposal in the state Legislature that would make changes to the way the state Bond Commission oversees the issuance of debt by cities, counties and local governments and entities.

He cited the state’s recent general obligation bond upgrade and its successful competitive sale of $391 million of GOs last week.

“The bill attempts to bypass the scrutiny of the Bond Commission for long-term financial obligations for political subdivisions … Even worse, there will be public fees that may have to be paid by citizens without their vote of approval,” said state Treasurer John Fleming.

Bloomberg News

“With so much recent success, we do not want to jeopardize any of this progress in this legislative session. The old maxim comes to mind, ‘If it ain’t broke, don’t fix it,'” he said.

Fleming said his office has concerns about House Bill 836 sponsored by Rep. Jack McFarland, R-Jonesboro, that was recently passed by the state’s House Ways and Means Committee and will be voted on by the full House of Representatives on Thursday.

“The bill attempts to bypass the scrutiny of the Bond Commission for long-term financial obligations for political subdivisions, such as a municipality, and could open the door for predatory lending practices,” he said in a statement last week.

“Even worse, there will be public fees that may have to be paid by citizens without their vote of approval. In essence, this is taxation without representation,” Fleming said.

“People hate to be hit with unexpected government fees every month — fees they never approved and may not even know about,” Fleming said. “But more such fees could be imposed on you if House Bill 836 passes the Louisiana Legislature now in session.”

He said the bill would let cities and other government agencies sign deals with a privately held out-of-state companies that would pay off the cities’ debt and then impose fees on taxpayers without a public vote.

Another concern he noted is the bill includes language that would make the law retroactive, which could impact pending litigation involving public entities.

He sent a letter last Thursday to lawmakers ahead of a Wednesday hearing, stating his office was open to negotiations, but the issue is settled by state law.

“We have had the pleasure of meeting with Rep. McFarland, a number of legislators, and representatives of organizations interested in this legislation,” Fleming wrote in the letter. “We have reviewed various ideas on the subject and a number of drafts that have been proposed as possible compromises.

“However, I feel it most important to emphasize by means of this letter that the final authority on this matter is the Louisiana constitution. No statute can alter the clear wording of the language in the constitution,” he said.

“Under the Louisiana Constitution, Article 7 Section 8, no governmental body can issue bonds or other obligations without approval of the state Bond Commission, which is chaired by the Treasurer,” he said. “The Bond Commission is the only real check on out-of-control debt at the state or local level. The Bond Commission also prevents fees being levied on the public without their approval.”

But he warned all of that would change with the passage of House Bill 836, which attempts to circumvent the requirements of the state constitution.

Separately, there is a plan afoot to rewrite the state constitution, which has been spearheaded by Gov. Jeff Landry.

A House panel this week heard a proposal  from Rep. Beau Beaullieu that would create a constitutional convention composed of lawmakers and gubernatorial appointees, according to Invest in Louisiana, a nonpartisan think tank.

“A Landry transition team has recommended stripping constitutional protections for certain departments and programs, which would make it easier for lawmakers to cut [their funding] when the state runs into financial problems,” the group said.

The Times Picayune reported lawmakers are considering changes to parts of the constitution that govern the state’s judiciary.

The convention could propose other changes as well, including parts of the constitution that govern how the state collects and spends its money, Beaullieu told the Times Picayune.

It is unclear at this time how the state Senate will respond to these moves. The regular legislative session finishes up in early June.

In March, S&P raised the state’s GOs to AA from AA-minus and the state’s appropriation-backed debt to AA-minus from A-plus.

“The upgrades reflect our view of Louisiana’s demonstrated commitment to improving and maintaining reserves above levels that we consider very strong and the state’s ongoing effort to reduce unfunded pension liabilities through its strong pension funding discipline,” S&P analyst Rob Marker said.

The state is rated Aa2 by Moody’s Ratings, AA-minus by Fitch Ratings and AA by Kroll Bond Rating Agency. All four rating agencies have a stable outlook on the credit.

As of June 30, Louisiana had $8.033 billion of net tax supported debt outstanding, of which $3.489 billion was GO debt, according to Moody’s. The state had an additional $827 million in insurance assessment debt.

KBRA said its AA long-term rating reflects “the state’s favorable financial operating performance, as evidenced by the generation of surpluses in each of past seven consecutive audited fiscal years, supporting what KBRA considers to be robust growth in both financial reserves and available liquidity.”

It said, “offsetting the aforementioned strengths are the state’s comparatively weak socioeconomic metrics, modest exposure to commodity pricing volatility given employment and economic output concentration in chemical and petroleum production, and increasing economic vulnerability to climatic events, including hurricanes and coastal erosion.”

KBRA said in its opinion, “Louisiana’s credit quality has proven resilient in recent years despite the COVID-19 pandemic, largely attributable to the governance practices, statutory provisions, and financial management policies enacted in recent years.”

The rating agency added, “policies requiring the timely adoption of balanced budgets, conservative revenue and expenditure forecasting, frequent reporting of budgetary performance, legislative limitations on fund balance utilization, prioritization of debt service and an overall commitment to reducing long-term liabilities through the enactment of pension reform and a constitutional limit on net tax supported debt, have collectively contributed to the generation of favorable financial operating performance supporting an improved reserve and liquidity position.”

Fleming said the reason the state has enjoyed improved bond ratings is due to the Bond Commission’s oversight, which provides guiderails that establish financial stability.

“Removing such guiderails creates an unnecessary risk for the state and local governments and it could have a negative effect on state and local bond ratings,” he said.

“Political subdivisions could end up with undesirable long-term obligations, which could impact their future debt and bond ratings,” he said. “With many billions of dollars of needed infrastructure, the last thing we need is to do is make it more difficult to secure funds at the best possible rate.”

Political subdivisions should be very cautious about entering into financial obligations without Bond Commission approval.

“We fear doing so might place those public officials who make such obligations, without Bond Commission approval, personally liable for their actions,” Fleming said.

Still, he said, while the Treasury Department works closely with all members of the Louisiana Legislature, its position is that regardless of what statute is passed by the legislature — short of a constitutional amendment — political subdivisions are not relieved of their responsibility to seek approval from the Bond Commission before issuing debt.

“After so much recent progress, it would be imprudent to bypass the needed oversight of the state Bond Commission on these critical financial issues. Instead, with close cooperation, we can continue moving in the right direction,” Fleming said.

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