Moody's: Outlooks For U.S. States, Local Governments Remain Negative

Moody's still sees a tough environment for states and municipalities. According to Moody's, the weak economy, real estate market and cuts in federal funding will continue to put pressure on states and local governments. Have any big local munis gone under? They are the most at risk given their limited taxing abilities and reliance on state funding. Jefferson County, Alabama has been in the news recently.
"Sept. 17 (Bloomberg) -- Jefferson County, Alabama, which approved a deal with holders of $3.14 billion of its sewer debt, now needs action by state lawmakers to end a more than three- year saga that kept it on the brink of filing the biggest municipal bankruptcy in U.S. history." (BusinessWeek)

Announcement: Moody's: Outlooks for U.S. states and local governments remain negative
Global Credit Research - 19 Sep 2011

"New York, September 19, 2011 -- 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 have declined."

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."

The reports, "U.S. States Continue to Face Credit Headwinds," and "Sector Outlook for U.S. Local Governments Remains Negative," are available at"


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