Standard & Poor's Ratings Services lowered its rating on Nevada's general obligation debt to AA from AA-plus Thursday, citing the state's severe economic downturn.
Nevada's economy has fallen on hard times in recent years due to its housing market crash — one of the worst in the country — and the recent recession's impact on tourism and patrons of the state's hotels, resorts and casinos, resulting in sharply lower revenue for the state's government.
"The rating action reflects our view of the state's severe economic cyclicality, which, as demonstrated in recent years, can limit its growth and growth prospects, given a relatively heavy dependence on discretionary consumer spending," S&P credit analyst Gabriel Petek said in a statement.
S&P's outlook on Nevada is "stable," which the rating agency said in the statement reflects "our view that the state's financial management is strong, as demonstrated by its continued willingness to make timely and proactive budget amendments as it deems necessary to maintain budgetary balance."
S&P also lowered its long-term rating on the state's appropriation-backed certificates of participation to AA-minus from AA with a "stable" outlook.
A Moody's Investors Service report said last month that tourism to Las Vegas, which is Nevada's economic engine, is on the mend and will improve slowly this year.
Officials in the state capital of Carson City have indicated the state's budget needs Las Vegas to recover as soon as possible.
Republican Governor Brian Sandoval has proposed slashing spending and shifting revenues to close a budget gap of more than $1 billion to balance the books over the next two-year budget cycle. He has proposed a $5.8 billion general fund budget and opposes tax increases, which Democrats who control the Legislature have urged.
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