Moody’s stays negative on states, local governments
CIGA Eric

The risk of default at the state and local level is real and largely ignored by mainstream media. American history is riddled with numerous examples of municipal default.

Headline: Moody’s stays negative on states, local governments

(Reuters) – Even though the recession officially ended more than two years ago, the still-weak U.S. economy and a pullback in federal support means the outlook for states and local governments remains negative, Moody’s Investors Service said on Monday.

The two sectors of the $3.7 trillion U.S. municipal bond market were originally branded with negative outlooks by Moody’s in 2009 as tax revenue tanked.

The rating agency noted that revenue collections have improved, but not enough for states to completely replace federal stimulus funding that ended in June. Another reduction is expected as Congress wrestles with ways to reduce the U.S. deficit.

"The determination of both political parties to reduce project federal budget deficits is certain to result in reduced funding for federal programs run by the states," Moody’s said in a report.

States also face pressures from Medicaid, the healthcare program for the poor, and big unfunded employee pension liabilities. In addition, there is the prospect of potentially having to bail out fiscally troubled local governments, Moody’s said, pointing to situations in states such as Alabama, Michigan, Pennsylvania and Rhode Island where bankruptcy has been eyed by cities or counties.

Source: finance.yahoo.com ^[1]

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