Standard & Poor’s has released a credit conditions forecast that is more positive for states than for localities.
“Our outlook for the national economy is more favorable to state governments than it is for local governments to the extent that the former tend to rely more on income taxes, and the latter depend more on property taxes,” credit analyst Gabriel Petek wrote in the report, “Sector Economic and Credit Conditions Forecast: U.S. State and Local Governments to See Gradual but Uneven Revenue Improvement.” Petek is the lead author.
The report noted that there is a delay between improved economic conditions and improved government credit conditions.
State and local revenue may gradually increase in 2012 and 2013. But it’s unlikely to increase fast enough to service pent-up demand for restored services and capital expenditures, Petek said. “We anticipate that more difficult policy decisions will likely be necessary, especially at the local government level,” he added.
On a national level, Petek predicted real gross domestic product growth of 2.1% in 2012 and 2.5% in 2013. He predicted total housing starts around 740,000 in 2012 and about one million in 2013.
“Our outlook for property tax revenues, a key source of revenue for many local governments, is fairly flat despite our expectation that housing starts will stabilize and possibly begin to increase somewhat in 2012,” he wrote.
“Even if home prices are approaching a trough in the current downward cycle … the assessment process … could continue to incorporate market declines for one or more years into the future.” He made predictions for nine different U.S. regions.
Petek projected that New England will have the weakest economic growth, with 1.7% real GDP growth. Massachusetts will be the strongest of the six and New Hampshire and Rhode Island should follow. The other states will have only tepid growth.
The region’s real estate market is showing signs of improvement, he wrote.
Petek also predicts a modest growth of 1.83% for the Middle Atlantic region — New Jersey, New York and Pennsylvania — this year. Several large financial institutions have announced cutbacks in recent months, Petek noted. On the other hand western Pennsylvania is benefiting from increased natural gas drilling.
The South Atlantic region should show a 2.15% real GDP growth. The region encompasses Maryland and Delaware and everything south along the East Coast plus West Virginia. Petek predicts regional home prices will continue to decline.
The East South Central Region — Alabama, Kentucky, Mississippi and Tennessee — should have a 2.16% growth rate, Petek wrote. Private housing starts should rise by 24% from 2011 to 2012.
The East North Central Region — Illinois, Indiana, Michigan, Ohio and Wisconsin — should experience a modest 1.8% growth rate. The recovery of the auto industry should spearhead this gain.
The West North Central region had a more shallow recession than did most regions and should experience 2.2% real growth this year. The region includes Iowa, Kansas, Missouri, Nebraska, North Dakota and South Dakota. Median housing prices should decline by 2% in 2012.
The West South Central region — Arkansas, Louisiana, Oklahoma and Texas — should have 2.8% GDP growth this year. The last two states are benefiting from increased oil prices.
The Mountain region should have 2.25% of real GDP growth this year. The region includes Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming. Though Nevada, Arizona and parts of Colorado saw a sharp contraction in the housing market in the recent downturn, this market should recover in 2013.
Finally, the Pacific region with Alaska, California, Hawaii, Oregon, and Washington should have 2.5% real GDP growth this year. Housing starts are on the rise but prices should not follow this pattern until 2013, Petek wrote.
