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Global Credit Research - 20 Aug 2013
New York, August 20, 2013 -- Moody's Investors Service has revised its outlook for US states
to stable from negative, as the slowly improving US economy continues
supporting growth in state revenues and reserves. Moody's
also acknowledges the economic recovery has been uneven, one reason
that the local government outlook remains negative.
"US State Sector Outlook Revised to Stable" explains the outlook
change in detail, while "Why US Local Governments Still Have
a Negative Outlook Despite Stabilization at the State Level" discusses
the continuing negative outlook for the local governments.
At the state level, the recovery has stabilized key indicators of
credit quality, says Moody's. Also, federal cuts
have become less likely to undermine continued growth.
Moody's outlook for the states was negative for five years.
Credit quality among states remains extremely high, however,
with 30 of the 50 states having either Aaa or Aa1 ratings, the two
highest possible ratings.
"Improving labor and housing markets have boosted consumer confidence,
and strong stock market performance has further improved state revenues,"
says Moody's Baye Larsen, Vice President and lead author of
the state outlook report. "Additionally, now that the
scope of federal cuts is better understood, there is less uncertainty
regarding the pace of continued economic recovery."
Despite a slow start, states continued to experience revenue growth
in fiscal 2013, says Moody's, with many states recording
better-than expected results.
States have also been boosting reserves. Median reserve levels
grew both in fiscal 2012 and fiscal 2013 and are now comfortably above
the low level they reached in fiscal 2010, although still well below
their pre-recession peaks, says Moody's.
There are several risks to the stable outlook, says Moody's.
One is the potential for federal deficit reduction, especially cutbacks
in government employment and procurement, to create drag on the
economy. Another major risk is budgetary pressure from pension
Moody's also notes employment levels are still below their pre-recession
peak and regional divides in economic growth across the US are delaying
full fiscal recovery in some states.
The unevenness of the economic recovery is a main reason that Moody's
outlook for the local governments remains negative. Some local
governments continue to suffer from depopulation, deindustrialization,
and a weak housing recovery, says Moody's.
Another reason is local governments fund most of their budgets with property
taxes. Even as many housing markets recover, there is a delay
before growth in market value translates into higher assessed values and
increases in property taxes.
Other important revenue streams for local governments, such as state
aid and sales taxes, have not recovered to the same extent as income
or capital gains taxes have. The latter two are major sources of
revenue for states.
The outlook captures Moody's expectations for the fundamental credit
conditions in the sector over the next 12 to 18 months.
For more information, Moody's research subscribers can access
the state outlook report at https://www.moodys.com/research/US-State-Sector-Outlook-Revised-to-Stable--PBM_PBM157465
and the local government report at https://www.moodys.com/research/Outlook-Update-Why-US-Local-Governments-Still-Have-a-Negative--PBM_PBM157557.
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VP - Senior Credit Officer
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
Robert A Kurtter
MD - Public Finance
Public Finance Group
Moody's: Outlook for US states revised to stable; local government outlook remains negative
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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