U.S. State And Local Government Downgrades May Increase In 2011, S&P Says

NEW YORK — Standard & Poor's Ratings Services expects that U.S. state and local governments will for the most part maintain medium to high investment-grade ratings in 2011, although downgrades may increase in number, according to a report, "Outlook: U.S. State And Local Governments Must Navigate Turbulent Conditions To Maintain Credit Stability," published Monday. Difficult economic and revenue conditions could result in severe budget pressures requiring tough choices by government officials.

"We believe that continued revenue decreases for state and local government may increase fiscal strain on budgets, and monitoring of liquidity will be especially important in 2011," said Standard & Poor's credit analyst Gabriel Petek.

The report says that, in addition to managing liquidity, U.S. state and local governments will need to continue to make sometimes difficult and unpopular budget choices and pay increasing heed to bond market conditions and pension costs. "However," adds Petek, "we do not feel that such difficulties will cause any sort of notable increase in defaults among our rated issuers."

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