Moody’s: Worst May Be Ahead for Nation’s State and Local Governments

A report in today’s Bond Buyer details views from Moody’s Investors Service, one of the major bond rating agencies, with a somewhat grim view of the coming wave of credit assessments for municipal (in bond parlance meaning state and local governments) bonds. From the article:

State ratings will continue to show credit stress as governments have lost not only tax revenue associated with the recession, but also federal stimulus money from the American Recovery and Reinvestment Act, which expired Dec. 31.

Many of the jobs that the Obama administration contended would be saved or created by the ARRA may now be lost because of state budget cutbacks.

A number of states have depleted their reserves but still face significant spending obligations.

Moody’s said two states were downgraded during the first quarter: Kentucky and Nevada.

Both were downgraded because of the recession and narrow economic bases, according to the rating agency.

About 37 cities and towns made up almost half of the first-quarter downgrades, Moody’s found.

“States are pushing down their cuts” to the local level, Richman said.

The other major problem, she said, is the lag between falling home prices and the resulting drop in real estate tax revenue.

Home prices have been declining steadily for several years, but lower assessed valuations are only now catching up. That means localities are only now seeing the resulting declines in property taxes.

The State of Maryland was recently reaffirmed as a Triple-A rated borrower by all three major rating agencies — the highest classification available for government debt. This means the interest rate (cost to borrow) for State indebtedness remains relatively low as compared to most other state governments. Most Maryland counties have relatively strong bond ratings as well — a summary of these local ratings from MACo’s most recent survey is available here.

Michael Sanderson

Executive Director Maryland Association of Counties

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