NEW YORK, Sept 19 Ongoing macroeconomic risks
and budgetary challenges prompted Moody's Investors Service on
Wednesday to reiterate its negative outlook on U.S. states for
the fifth year in a row since the start of the recession in
"While the U.S. states remain strong with tax revenues
having recovered modestly, states face persistent fiscal
challenges due to the slow recovery of the U.S. economy, a weak
global economic outlook and risks to states from federal
downsizing," said Ted Hampton, the author of the Moody's report.
The ratings agency, which had already issued a negative
outlook report in February, said that the sector outlook
remained negative midway through the year.
Since the recession started, "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.
States' credit standing remains relatively strong in
comparison to other sectors.
Thirty of the 50 states have general obligation bonds rated
by Moody's at Aaa or Aa1.
During 2012, downgrades were limited to Pennsylvania (to Aa2
from Aa1), Connecticut (to Aa3 from Aa2) and Illinois (to A2
from A1), the report said. Moody's has a negative outlook on
"Conditions that would lead us to revise the sector's
outlook to stable, such as continued economic and revenue growth
or a more muted impact of federal downsizing, remain to be
seen," the report said.
Funding public pensions remains a challenge, the rating
"Although public pension assets grew a net 17.6 percent in
2011 following strong market performance, those gains did not
offset all of the losses pension plans experienced during the
2008-09 downturn, and subsequent returns in fiscal 2012 were in
the range of only 1 percent," Moody's said, adding that pension
budgetary costs will be pushed upwards by the increasing number
of state government retirees and by the benefits which have been
boosted in the past.
"States that are unable or unwilling to implement pension
reforms or seek other long-term means to fully fund their
pension requirements will face the most credit pressure."