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Research Announcement:

Moody's - Outlook for US states, local governments revised to stable on higher forecast revenue growth, additional stimulus

11 March 2021


New York, March 11, 2021 --

  • The stable outlook for states reflects stronger-than-expected tax collections and continued federal monetary support.
  • The revised outlook for local governments takes into account improving economic and financial conditions which will stabilize intergovernmental aid and local tax revenues.

Moody's Investors Service has changed its outlook for US states to stable from negative. In a report published today, the rating agency notes most states have revised their revenue forecasts upward for fiscal years 2021 and 2022 based on stronger-than-expected tax collections and continued fiscal support from the federal government during the ongoing pandemic.

"In most states, tax revenue growth continues to outpace previous expectations, leaving only a few with looming budget challenges," said Matthew Butler, a Moody's VP-Senior Analyst. "Meanwhile, federal support for individuals and state Medicaid programs via Congress's latest stimulus package will further stabilize state finances."

States largely held off making cuts in their fiscal 2021 budgets, and higher-than-expected revenue will allow planned spending to go ahead, Butler says. Most states will retain or even add to their reserves in fiscal 2021, and are poised to do the same in fiscal 2022. At the same time, stimulus checks and the extension of unemployment benefits will continue to buoy both consumer spending and state sales taxes, and ongoing higher Federal Medical Assistance Percentage (FMAP) spending will keep state spending tied to Medicaid caseloads in check.

The economic recovery remains uneven, however. For states that earn significant income from travel and tourism, such as Hawaii and Nevada, and those with higher dependence on sales taxes, such as Florida and Texas, revenue recovery will be relatively weaker. Through January 2021, Florida's general fund revenue was down 1% from the same period a year ago, while through February 2021 Texas' general fund revenue was down nearly 10% from the same period a year ago.

The outlook for US local governments has likewise been revised to stable from negative, Moody's says in a second report. Improving financial and economic conditions will enable the majority of local governments to absorb lingering financial stress from the pandemic, though recovery will be slower for those that rely heavily on travel and tourism.

"Rebounding economic conditions as the pandemic wanes will lead to stable intergovernmental aid, sales tax and income tax revenue," said Moody's Analyst Natalie Claes. "At the same time, residential property appreciation will support property tax growth, though in some cases this growth will be offset by declines in commercial property values."

Meanwhile, in addition to providing direct support to local governments, the $1.9 trillion federal stimulus package approved this week will further boost economic activity and support continued growth in tax revenues. Nevertheless, good pandemic management will remain vital to local government finances. While further outbreaks of COVID-19 could result in economic contraction, stronger-than-forecast economic recovery would provide an additional boost to local government finances.

For more research and insight on the coronavirus (COVID-19) outbreak, please see moodys.com/coronavirus.

Subscribers can access the state report, "States – US: Outlook improves to stable amid stronger budgetary picture and federal support," at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1270081 .

Subscribers can access the local government report, "Local Government – US: Outlook changed to stable as revenue conditions improve, federal aid continues," at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1270147 .

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Matthew Butler
VP-Senior Analyst
Project & Infrastructure Finance
Moody's Investors Service, Inc.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Natalie Claes
Analyst
Project & Infrastructure Finance
Moody's Investors Service, Inc.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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