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Treas. John Kennedy Talks Impact Of S & P Credit Rating Downgrade On Louisiana, U.S.
Written by  // Wednesday, 10 August 2011 12:43 //

John KennedyAfter S & P downgraded the U.S. credit ratings for the first time in history, many have wondered how and if this event would impact states and local municipalities.

To obtain more relevant information regarding how the downgrade might affect Louisiana, on Tuesday Bayoubuzz interviewed the Louisiana Treasurer John Kennedy.

The interview is published in a two- part series.

Today, Bayoubuzz publishes Part One which follows below. 

Please listen to the audio for an exact rendition of the interview.

(Bayoubuzz Interviewer asks Treasurer Kennedy to give his observations as to what has transpired over the past few weeks)

Well, S & P, of course, downgraded federal debt.  That is not what caused the stock market disruption.  I think that was an excuse; but let’s look at the downgrade first. You know that when the debt is downgraded it obviously means the rating agencies,  in this case,  S & P,  thinks your debt is riskier and that you should have to pay a greater interest rate to get people to loan money to you.  I am asked what impact that would be on Louisiana; we don’t know.   I am not predicting there will be any impact, we are rated AA stable.  We just got a rating increase and under our Constitution, bond holders get first dibs on all revenues that come into the state; bondholders get paid before employees get paid, or healthcare or education or roads or anything else.

But getting back to the federal government, the markets, of course, have gone down; not just in America but worldwide. I think what investors are telling political leadership in the world, including but not limited to the United States, don’t get your back together.  America’s a good example.  We have revenues at the federal level, about  $160, $170 billion per month.  We spend $300 billion per month, we borrow the difference.  That’s like a person making $55,000 per ye ar spending $97,000 every  year.    You know you can’t do that for very long, you can do it for a while. You can max out your credit cards or get new credit cards or borrow money from relatives but sooner or later if you are making $55,000 and spending $97,000 you are going to go broke.

I think what the investors worldwide are saying to America and to countries like Italy and Greece and Spain and Portugal and others, is--that “you are spending more than you are taking in. We think that ultimately it’s going to have a bad impact upon your economy,  that will impact corporate earnings, that will impact stock prices and so we’re selling”.

And I think it’s a message to the President and to Congress to get control of federal spending.

Listen

 

(Interviewer asks Kennedy if the U.S. has a revenue or spending problem and if there are any revenues we should look at to close the debt gap)

Well, I think certainly we ought to take a look at some point at our tax system and whether it makes sense in 2011.  Many of the provisions of our tax system were designed decades ago.  But I think first and foremost that America has a spending problem.  I do not think there can be any doubt about that and it has got to be controlled.   And I would prefer to see Congress just devote itself exclusively to Federal spending.  You know, how many Federal government employees do we have?  How many do we need?  What is the span of control?  How many managers do we have managing how many employees?  Look at military spending.  I think we just have to start at A and go to Z and look at spending and once they do that I think they should tackle looking at the tax system.  You are not talking to somebody who believes the answer here is to raise taxes.  I think the problem is the spending, in my opinion.

Listen

(Interviewer asks about Kennedy’s comment regarding whether Louisiana will be impacted by the S & P decision).

We won’t be impacted immediately.  If the federal government listens to Standard and Poors  and, more importantly listens to the investors  out there, who are selling American stock, then Congress is going to  get control of its spending.   And given the fact that Louisiana’s budget, $25 billion of budget is about half to 60% depending on the year, federal money, we could see an impact there and we need to start preparing for that day but that day is not any time  close.

 

(Interviewer asks Treasurer  Kennedy whether the special committee set out by the agreement could have a more immediate impact in taking actions on its recommendations )

Good point, It could have an impact there and what we need to be doing at this point is looking at every state program that spends Federal money and asking ourselves how can we do it more efficiently.

Within that program, what is our priority for expenditures, how would we deal with the situation where the Federal government sent less money to the states including Louisiana.

(Interviewer says he believes that the state and local governments will be affected and understands that the state is protected by the Bond Security and Redemption Fund and asks what about the parishes and local governments, will they be impacted?  Are they protected?)

It depends on their Home Rule Charter.  I have not looked parish by parish or local governmental unit by local governmental unit.  Some probably are and others probably do it just like the Federal government does.  There is no requirement at the Federal level that Federal bond holders be paid first like there is at the state level.

Listen


Next segment, Kennedy discusses the current state budget, the possible privatization of Office of Group Benefits,  and the future bonding issues for state and local government

by Stephen Sabludowsky, Publisher of Bayoubuzz.com

Do you agree or disagree with Treasurer John Kennedy?

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