Moody’s Investors Service said on Tuesday that most U.S. public finance sectors, such as state and local governments, still face a negative outlook and will likely continue to do so until fiscal and economic conditions strengthen.
“While the recovery has benefited most public finance sectors to varying degrees, the positive effects due to an improving U.S. economy and capital markets have not been sufficiently robust to stabilize credit conditions in many areas,” said Moody’s analyst Eva Bogaty, author of the report
Moody’s said the negative outlook for these sectors also took into account federal budget cuts as well as growing public pension liabilities.
The Wall Street credit ratings agency said the slow U.S. economic recovery was a widespread drag on the finances of local and state governments, which are the backbone of the $3.7 trillion municipal bond market. Low housing prices and large pension costs also weigh on governments.
Moody’s said in a commentary that it did not expect the outlooks for most public finance sectors to return to stable until sustained U.S. economic growth begins lifting employment, housing prices, consumer confidence and household wealth.