Moody's Investors Service has put 11 triple-A rated municipal credits, including one state, one major city and two state housing authority programs, on negative watch following a new
Missouri earned a place on Moody's negative outlook list due to the fact that its federal contracts constitute a significant percentage of its gross domestic product, as well as its high reliance on Medicaid payments.
Other top-rated issuers moved to negative outlook include the cities of: Ames, Iowa; Easton, Conn.; Indianapolis, Ind.; and Rochester, Minn. The counties of Olmsted, Minn.; Linn, Iowa; and Charleston, S.C., also made the list, as well as the Charleston County Park and Recreation District.
Two series of Idaho Housing and Finance Authority Bonds issued in 2000 also received a revision to negative from stable.
Moody's currently rates the U.S. triple-A with a negative outlook.
An "indirect linkage" between the federal government and states and localities identified in the latest report means that if the U.S. rating were placed under review or downgraded, those issuers would also be reviewed or downgraded.
"Even in the absence of a direct credit link, sovereign rating downgrades often coincide with an increase in long-term credit risk for other domestic issuers," Moody's wrote report released Tuesday night. "Vulnerable sub-sovereign credits are overly sensitive to elevated risks of the sovereign."
Those risks, Moody's said, include deteriorating economic conditions, large budget deficits or high inflation, a likelihood of tax increases, or a contraction of domestic credit availability.
The top-rated states of Virginia, Maryland, and New Mexico have retained their negative outlooks. Alaska escaped a negative outlook despite high levels of federal employment.
"While Alaska's federal employment levels create a high level of economic linkage to the sovereign rating, the state's finances are driven almost entirely by the oil and gas sector," Moody's analysts concluded. "Alaska's economic and financial separation is significant enough that in our opinion the state would not likely be affected by a potential one notch downgrade of the U.S. government."
Moody's simultaneously changed the outlook to stable from negative on 11 other issuers, mostly housing finance authority pooled single family loan programs, that it determined no longer have a significant linkage to the federal government.
"The triple-A rated City of Denver and the Lower Merion School District in Montgomery County, Pa., also had their negative outlooks changed to stable as our analysis showed they were not as significantly linked to the U.S. rating," said Moody's spokesman David Jacobson.
Moody's now considers a total of four states, 40 local governments, and 26 HFA programs linked to U.S. credit quality.
