ALAMEDA, Calif. — Nevada received its second downgrade of the month Thursday when Moody’s Investors Service dropped its general obligation bonds to Aa2 from Aa1.
Moody’s cited “the profound economic impact of the recession,” combined with a narrow economy dependent on gambling and tourism, and the state’s decreasing financial flexibility.
At the same time, Moody’s downgraded Nevada’s certificates of participation to Aa3 from Aa2, while changing the outlook to stable from negative.
The action applies to about $2.3 billion of net tax-supported debt.
Standard & Poor’s downgraded Nevada GOs to AA from AA-plus March 10. Fitch Ratings assigns a AA-plus to the state.
“Nevada is lagging other states coming out of the recent recession,” Moody’s said in its report.
Nevada’s unemployment rate is the nation’s highest at over 14%, and the state’s economy continues to struggle with the lingering hangover from its burst housing bubble.
“The nationwide real estate bust affected Nevada the worst in terms of changes in activity, foreclosures, and prices,” Moody’s said.
“The job-creating engine of the construction industry collapsed in the face of a supply glut and diminished underlying economic factors such as gaming and tourism sector employment,” according to Moody’s.
The state continues to wrestle with the revenue effects of that deep recession.
Nevada has a modest debt burden and a history of conservative and responsive financial management, Moody’s said, but “the reserves Nevada built up during economic expansion have been depleted, eliminating that financial cushion.”
Moody’s assigned a stable outlook that “reflects our belief that while the economy is very weak and will remain weak for the near to medium future, there are some early signs of economic and revenue stabilization in the state.”