The outlook for both state and local governments remains negative, Moody’s Investors Service said Wednesday.
Moody’s issued a pair of reports on the topics, saying the European recession and debt crisis threatens the tentative recovery of the U.S. economy.
Plans by the federal government to cut spending to address its deficit will also hurt states and localities, the reports state.
Moody’s believes that Maryland, New Mexico and Virginia would be the most affected by federal spending cuts among Moody’s 15 Aaa-rated states. Among large cities, Washington, D.C., and San Antonio would be most likely to be financially harmed by federal spending cuts.
The reports are cautious in ther projections for both state and local government revenues in 2012. On the state level, Moody’s points to weak Wall Street profits and a troubled global economy as possibly moderating personal income-tax growth. It also notes that consumer confidence has not reached pre-recession levels, curbing sales tax growth.
Localities will likely continue to struggle with new state aid cuts. Additionally, “because property tax appraisals typically occur 12 to 18 months before the property taxes are collected, the substantial property value reductions at the end of 2010 and throughout 2011 have started to affect local government revenue collected,” the reports said.
The greatest expenditure pressures for states will be Medicaid, employee health care and pensions, Moody’s said.