NEW YORK Feb 14 Moody's Investor Service said
on Thursday its outlook for U.S. states remains negative for the
sixth year in a row despite signs of stabilization in the
"Expenditure pressure from budget drivers such as Medicaid
and pensions has not abated, and the continued threat of federal
deficit reduction actions presents a risk to economic growth,"
the rating agency said in a report.
Moody's, whose median state rating is Aa1, said that default
risk for the sector remains "very low," however. Out of the 50
states, 30 are rated in the two highest categories.
The rating agency forecast 2013 U.S. economic growth of 2.1
percent, accelerating to 2.5 percent in 2014.
An increase in marginal tax rates for high-income earners at
the federal level will have different effects on states, Moody's
Alabama, Iowa, Louisiana, Missouri, Montana and Oregon are
likely to see reduced income tax collections because they allow
some deductions of federal income tax. Another eight states,
which link their adjusted gross income to federal tax rates, are
instead likely to collect more in taxes. Those are Colorado,
Idaho, Minnesota, North Carolina, North Dakota, Oregon, South
Carolina and Vermont.
After California enacted a $6 billion personal income and
sales tax increase, other states have proposed raising personal
income taxes. Maryland plans to boost the tax rate to 6.25
percent, from 5.25 percent, while Minnesota plans a boost the
tax rate on highest earners.
Other states, such as Kansas and Louisiana, have discussed
lowering taxes, Moody's said.
State tax revenues have increased for eleven consecutive
quarters and are projected to rise by 3.9 percent in fiscal
2013, according to the Rockefeller Institute of Government.
Meanwhile, spending has picked up again, Moody's said.
"Following two consecutive years of decline, state spending
began to grow again in fiscal 2012, with the exception of higher
education, public assistance, and corrections. The two largest
growth areas for states are Medicaid and pension costs," the
Aggregate public pension unfunded liabilities reported by
states in fiscal 2011 were $400 billion or 27 percent of total
state revenues for the year, according to Moody's estimates.
Those liabilities range from less than 5 percent of revenues to
almost 150 percent of revenues in Illinois and 190 percent in