WASHINGTON - Two Standard & Poor's reports released yesterday give a grim warning of rough times ahead for state and local government finances: as the nationwide economic downturn and housing slump continue, revenues will also continue to fall and municipal bond issuance will increase.

One of the reports, which focused on how the weak economy is taxing state budgets, said that many states' fiscal 2009 budget proposals are already out of balance soon after being announced as revenues have dropped, which may lead to a shift to bonds for capital funding. States will also face gaps of more than $30 billion to balance 2009 budgets with reduced tax revenue expectations from weaker growth, the ratings agency said.

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