Texas two-year deficit may hit $18 billion: Moody's

NEW YORK Fri Jun 11, 2010 5:09pm EDT

NEW YORK (Reuters) - Though Texas kept the top credit rating from Moody's Investors Service, the state's next two-year deficit could soar to between $11 billion and $18 billion, depending on how long the revenue-slashing recession drags on, the credit agency said on Friday.

The recession landed in AAA-rated Texas later than in many other states, and Texas's diversified economy also should revive faster, Moody's said.

"The state's important energy markets, its vital position in trade and transportation routes and its robust population growth all have driven its economic expansion in recent years," Moody's said.

Texas "is expected to recover early and be an above-average performer during the recovery," Moody's added.

A spokeswoman for Republican Governor Rick Perry in an emailed statement said: "The governor will work with lawmakers next session to balance the budget without raising taxes."

The legislature will not return to session until January and the budget process has not fully begun. The state comptroller has yet to issue revenue estimates for the 2012 and 2013 budget; nor have agencies submitted their plans, the Perry spokeswoman said.

Though Moody's said Texas's outlook is stable, the credit agency's list of the state's financial risks included a problem many of its peers will have to deal with: the end of the federal stimulus plan.

The list of Texas's potential problems also includes its costly property tax relief and school financing programs, both of which depend on the "underperforming" business tax, Moody's said. The sales tax, however, has recently done a bit better.

Still, Texas has "a growing population that has relatively high poverty levels and substantial need for public services," Moody's said.

Texas has several strengths, however, including its moderate amounts of state debt and its Rainy Day Fund, which could increase to $8.2 billion by the time the current two-year budget ends in August, Moody's said.

(Reporting by Joan Gralla; Editing by James Dalgleish)

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