WASHINGTON (MNI) – The following text is a statement by Moody’s
Monday regarding it’s outlook for state and local governments in the
Moody’s Investors Service is maintaining negative outlooks for the
U.S. states and local government sectors despite the fact that most
issuers have demonstrated strong budgetary management in difficult
times, given the dual challenges of a weakening economy and diminished
support from the federal government.
The rating agency offers its assessments in a pair of reports that
update its 2011 outlooks for the two public finance sectors that were
published early in the year.
“The challenges for states include the lackluster economic recovery
and the stated intention of both political parties to reduce projected
federal budget deficits,” said Moody’s Vice President-Senior Analyst
Nick Samuels, author of the report on states. “This is certain to result
in reduced funding of various types for state and local governments.”
While state governments revenue collections have been rising,
Samuels explained, it will not be enough to fully replace the federal
stimulus funds that expired in June. States, for example, lost $66
billion in fiscal year 2012 due to the program’s termination, according
to the National Association of State Budget Officers.
Moody’s reports that the federal government’s cost-cutting trend
carries broad implications for states and localities beyond direct cuts
in aid or program terminations. This is especially the case for states
and municipalities whose economies include large numbers of federal
employees and those with a significant amount of federal contracting.
“For local governments, which rely heavily on property tax
revenues, the ongoing impact of the real estate market downturn has been
particularly negative,” said Moody’s Vice President-Senior Credit
Officer Geordie Thompson, author of the report on local governments.
“Despite modest economic growth and a boost in sales taxes, a robust
recovery has failed to materialize, and revenues for local governments
Unemployment, including the loss of state and local government
jobs, has also helped to slow economic growth, and federal job cuts will
have a similar effect, according to the Moody’s reports.
“On the upside,” said Samuels, “the enactment of pension reforms by
states and local governments over the last two years — and improved
market performance by pension funds — are positive developments for the
credit standing of states and localities.”
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