WASHINGTON — State and local governments increasingly are facing court challenges over their attempts to use furloughs to cut expenses as revenues decline, a trend that could have negative credit implications, Moody’s Investors Service warned in a report released this week.

Governments that are forced to honor union contracts and pay workers “will face more negative pressure” on their ratings, said Edith Behr, the vice president and senior credit officer at Moody’s who wrote the report. “Without the right to impose furloughs, governments, already facing revenue shortfalls and liquidity constraints that have led to a negative outlook on the state ratings sector, will have to find alternatives to cutting their budgets.”

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