By State Treasurer John Kennedy

Signs of recovery from Hurricanes Katrina and Rita are evident throughout south Louisiana. From Lake Charles to New Orleans, it wont be long until people return to their homes permanently and businesses start back in full swing. Rebuilding has begun in earnest, and the state is making positive steps on the road to recovery.

Reconstruction and revitalization will be particularly challenging for local governments, however, especially when it comes to their finances. Local governments in areas affected by the hurricanes currently have around $9.1 billion in outstanding bonds, $6.4 billion of which has bond insurance.

Local Government Financing Proposals

There are several ways the state could help local governments make these debt payments. We could put together a pool of seed money by reducing state bonded indebtedness payments. Local governments could then borrow from this pool to make debt service payments. This would involve restructuring general obligation debt, and the process is similar to what a homeowner does when he refinances a mortgage and lengthens the payment terms to lower his monthly payments. We have asked Congress for this refunding flexibility, and I believe we will receive it shortly. Under this plan, the State Bond Commission and Joint Budget Committee would have to approve all loans made to local governments to service the debt on their bonds.

Another way the state could help local governments is to secure a credit facility for sufficient funds to provide loans to local entities over the next two years for debt payment purposes. The amount needed would be $200 million to $400 million, which the state could borrow. If necessary, the initial borrowings by the state could be done on an appropriation-backed basis through lines of credit the Treasury has already established.

These are just two of the proposals we have put on the table to help local governments make their debt service payments, and we will continue to assist local governments any way we can.

Keeping the Financial Community Informed

The Treasury has taken several steps to help keep the lines of communication open between local governments, the national rating agencies, bondholders, investors and insurers regarding local government debt. We continue to hold regular conference calls with members of the financial community to keep them updated about Louisiana’s finances.

Once a month we post a list of debt service payments that are due from local governments in areas affected by the recent hurricanes. This can be found on the Bond Commission section of our website, located at www.latreasury.com. We also have a new online feature called Louisiana Bond Watch that lists detailed information about state and local debt service payments and their due dates. The financial markets never like uncertainty, and we are doing everything we can to prevent this.

Regardless of the challenges local governments face, there will be no bankruptcies. Any local government bankruptcy would have to go to the State Bond Commission for approval, and as chairman, I will not put one on the agenda to be approved.

In addition, I want to assure members of the financial community and the public that the state of Louisiana will make all of its debt service payments on time and in the correct amount. The state has not and will not default on any of its debt obligations, and bankruptcy is not within the realm of possibility.