Moody’s: Negative Outlook for U.S. Local Governments

In more bad news for state and local governments, Moody’s downgraded the outlook on local governments yesterday to “negative.” Per the New York Times:

Moody’s Investors Service assigned a negative outlook to the creditworthiness of all local governments in the United States, the agency said Tuesday, the first time it had ever issued such a blanket report on municipalities. The report signaled how severely the economic downturn was affecting towns, counties and school districts across the nation. […] The report suggests that the ratings of many governments could be downgraded in the coming months, something that would make it more expensive for them to borrow money to finance their operations.

As Moody’s analyst Eric Hoffmann tells Bloomberg, government fiscal policy matters:

“This could be offset by the demonstrated willingness and ability of management to make rapid, if not multiple, mid-year budget adjustments, and to maintain consistently conservative budget assumptions,” Hoffmann said.

Joe Weisenthal at Clusterstock observes that, “it seems overspending and the hollowing out of the revenue base is a nationwide phenomenon affecting cities and states everywhere.”

As I discussed here months ago, the changing muni finance market makes it more critical than ever for policymakers to embrace proven tools like privatization and public-private partnerships.

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