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The Hill: 11 States Facing 'Chronic Budget Stress'

Image: The Hill: 11 States Facing 'Chronic Budget Stress'
(AP Photo/Anthony Devlin)

By    |   Wednesday, 05 Apr 2017 09:55 PM

No state has defaulted on its public debt since the 1930s – but one financial expert warns nearly a dozen states suffering "chronic budget stress" could be headed in that direction.

"This long period of relative calm may have lulled some people into complacency when it comes to state finances, [but] it shouldn't have," Gabriel Petek, a managing director and expert on state finances at S&P Global Ratings, wrote in The Hill.

"We now see a profound shift unfolding in states such as Illinois, Kentucky, and New Jersey, whose pension systems are funded at distressed levels."

S&P Global Ratings has issued 11 state credit rating downgrades and only two upgrades since January 2016, Business Insider reported.

States that received negative ratings ranged from Alaska, Wyoming, and North Dakota to Oklahoma, Louisiana, Kansas, and New Mexico.

But New Jersey, Illinois, and Kentucky are facing the biggest problems, and Business Insider broke it down as to why:

  • S&P Global Ratings last October dropped Illinois' credit rating one notch to BBB, virtually junk bond status and the lowest rating of any state, warning the rating could fall even further unless Republican Gov. Bruce Rauner and his Democratic opponents in the state legislature come to an agreement on a long-term solution to Illinois' chronic budget deficit and pension problems.
  • Last November, S&P Global Ratings downgraded New Jersey's credit rating from "A" to "A-minus" after citing the state's struggling pension system and a recent deal between Republican Gov. Chris Christie and Democratic lawmakers to cut more than $1 billion in taxes. Three top credit rating agencies – S&P, Fitch Ratings and Moody's Investors – have now downgraded New Jersey for a total of 10 times.
  • Last January, S&P raised a red flag regarding Kentucky's $32.6 billion public pension debt, revising its outlook on the state from stable to negative.

With a new Republican president and Congress seeking deep cuts in most domestic spending, Petek warns states likely must "go it alone" the next time a recession strikes.

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No state has defaulted on its public debt since the 1930s – but one financial expert warns nearly a dozen states suffering "chronic budget stress" could be headed in that direction.
budget, public, debt, states
332
2017-55-05
Wednesday, 05 Apr 2017 09:55 PM
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