WASHINGTON — The rate of growth in states' outstanding debt slowed for the fourth year in a row and represented the slowest growth in 20 years partly because of a new conservative attitude toward debt, Moody's Investors Service said in a report issued Thursday.
"We expect state debt levels to show only modest growth in 2014 based on current issuance trends and the uneven pacer of the recovery in revenues," the rating agency said in its report, 2014 State Debt Medians: Appetite for Borrowing Remains Weak.
"Uncertainties about the strength of the economic recovery and the course of federal fiscal policy, while not as acute in 2013, also linger," Moody's said in the report.
The 0.4% growth rate in 2013 in net tax-supported debt (NTSD) was well below the 6.5% average in annual growth during the past 10 years, as well as the 1.3% growth rate in 2012. The total NTSD for all 50 states increased to $518 billion from $516 billion in 2012.
About half of all states had a decline in NTSD, including historically large issuers such as California, Moody's said.
The slowdown in growth can be attributed to the fact that states are more reluctant to issue debt, as they continue to navigate through a slow and uneven recovery and their operating budgets remain tight, Moody's said.
"Growing spending pressures coupled with inconsistent growth in revenue and uncertainty over future growth rates have forced states to take a more cautious approach when considering the addition of new debt service costs to their budgets," the rating agency said.
Also some states have either reached or come near their self-imposed debt limits. Florida and North Carolina reached their capacity for new debt during the recession and have only recently been able to issue new debt, according to Moody's.
Further, uncertainty over federal fiscal policy has put a damper on state debt plans.
"Over the past two years, sequestration, threats to the municipal bond tax-exemption, and the government shutdown caused many states to put off debt issuance as the full economic impact of these developments remained unclear," Moody's said. "States were reluctant to take on debt service obligations, given that future economic growth and thus revenue growth could be jeopardized by federal inaction."
Debt ratios declined against population and personal income, the rating agency said. NTSD per capita decreased by 2% to $1,054, while NTSD as a percentage of personal income declined to 2.6% from 2.8%. NTSD as a percentage of gross state product declined slightly, to 2.4% from 2.5%.
Meanwhile, debt service costs increased by 8% in 2013, compared to a 3% gain in 2012.
"Growth in debt service costs reflects a return to a normal debt service schedule after years of artificially low debt service due to refunding activity in a low interest rate environment." Moody's said.
