Moody`s Text: Reaffirms Negative Outlook For U.S. States
Baku, September 20 (AZERTAC). The following is the text of a statement Wednesday by rating agency Moody`s: Moody`s: US states avoid significant credit deterioration but challenges remain. The credit outlook for US states remains negative, reflecting ongoing macroeconomic risks and persistent budgetary challenges, says Moody`s Investors Service in a new report that updates its 2012 sector outlook. "While the US states remain strong with tax revenues having recovered modestly, states face persistent fiscal challenges due to the slow recovery of the US economy, a weak global economic outlook and risks to states from federal downsizing," said Ted Hampton, author of the report, "US States Sector Outlook Remains Negative." Moody`s negative sector outlook has been in place since the start of the recession in 2007, and the new report underscores that current conditions are likely to extend challenges for states. "During this protracted period of economic and fiscal stress, states have shown the ability to rein in spending, shift fiscal burdens onto local units and, to a lesser extent, increase tax revenues," said Hampton. "These powers are key to states` credit standing, which remains high, despite a preponderance of downgrades in the past three years." Compared with issuers in other sectors, states benefit from manageable debt burdens and diverse economies. Thirty of the 50 states have general obligation bonds rated Aaa or Aa1, the highest two rating levels. Default risk implied by state ratings even at the weakest level -- currently A2 -- remains low. "Revenues are growing, and some states are rebuilding reserves or restoring funding to programs previously cut," said Hampton. "Weaker states nevertheless are struggling to address persistent pressures from pensions and employee healthcare, as well as Medicaid." In its report, Moody`s offers that conditions that would lead it to revise the sector`s outlook to stable -- such as continued economic and revenue growth or a more muted impact due to federal downsizing -- remain to be seen, and the prolonged period of the sector`s negative outlook continues to be characterized by a disproportionate share of downgrades and other negative rating actions. Since the beginning of 2009, state general obligation bond ratings have been lowered 16 times and raised only twice. State general obligation bond rating changes so far this year have been limited to downgrades: Pennsylvania, to Aa2 from Aa1 in July, and in January, Connecticut was downgraded to Aa3 from Aa2 and Illinois to A2 from A1. Nine states have negative outlooks.
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