(The Center Square) — Louisiana’s long-term liabilities, including direct debt and adjusted net pension liabilities, increased in fiscal 2023, reflecting broader national trends driven by market volatility.
According to a report from Fitch Ratings, Louisiana’s total adjusted long-term liabilities reached $17.2 billion, representing 6.4% of personal income, ranking 34th among states for this burden.
So, every resident in Louisiana would have to set aside more than six cents of every dollar they earned to chip away at the state’s $17.2 billion long-term debt.
Louisiana’s long-term liabilities as a percentage of personal income increased to 15.4% in FY 2023, up from 14.7% in fiscal 2022. For state pension holders, a rising long-term liability burden could signal challenges in funding pensions, potentially leading to budget shifts, benefit adjustments, or cuts to public services.
The rise in long-term liabilities comes as a result of weaker pension asset values from 2022 market declines, which reversed gains made in fiscal 2022. Louisiana’s adjusted net pension liability rose to $9.4 billion, or 3.5% of personal income, placing it 30th nationally in this category.
Meanwhile, the state’s direct debt decreased slightly, with its $7.8 billion representing 2.9% of personal income, ranking 36th.
The median ratio of state pension assets to adjusted liabilities dropped nationwide in fiscal 2023, from 73.5% to 66%. Louisiana experienced a similar decline, as its pension systems grappled with the fallout from weaker market performance.
Fitch noted that while many states benefited from supplemental pension contributions, Louisiana has not yet implemented such measures at a significant scale.
Supplemental contributions by states like California and Connecticut have shown potential for long-term savings, but Louisiana remains constrained by its fiscal environment.
Despite the rise in long-term liabilities, Louisiana’s direct debt metrics remain relatively stable. The state’s reliance on cash for some capital improvements has helped moderate its debt burden, but the growing demands of aging infrastructure and deferred projects pose challenges for future budgets.
As Fitch’s analysis highlights, Louisiana’s liability burdens are compounded by legal barriers to modifying pension and other post-employment benefits, which make managing long-term obligations more complex.
At the core of the challenge is the volatility of pension assets. While pension asset values fell nearly 5% in fiscal 2023, Louisiana and other states are improving their contribution practices, with 40 states nationwide making at least the full actuarially determined contribution last year. These efforts, combined with supplemental contributions in some cases, signal growing fiscal discipline despite rising liabilities.
Nationally, long-term liability burdens increased from 3.9% of personal income in fiscal 2022 to 4.2% in fiscal 2023. However, Fitch views these changes as consistent with expectations and unlikely to affect state credit quality.
For Louisiana, the state’s AA- issuer default rating reflects its capacity to manage fiscal pressures, albeit with challenges related to persistent pension and OPEB liabilities.
