Trump Administration's Policies Undermine US State Credit Quality
A recent report by Municipal Market Analytics (MMA) highlights the negative impact of the Trump administration's "rapid and chaotic activity" on the creditworthiness of US states.
MMA has downgraded its state-sector outlook from positive to neutral due to concerns over executive orders and policies that affect federal funding and staffing. States rely heavily on federal assistance for programs such as education and healthcare.
The uncertainty created by potential funding cuts increases the likelihood that states will deplete their reserves or suspend projects. This could result in reduced aid to local governments, colleges, and hospitals.
Despite states having exceptional reserve levels, MMA analysts Matt Fabian and Lisa Washburn warn that "the destabilizing actions of the federal government" pose a challenge to state credit quality.
MMA also lowered its outlook for state housing finance agencies, as reduced federal funding and staffing raise the risk of a negative rating action on the US government's bonds. Additionally, the report notes the looming threat of the administration eliminating or partially repealing the municipal bond market's tax-exemption.
The researchers emphasize that states are also facing increased costs due to distractions from normal operations, fees for advisors and consultants, and litigation expenses related to challenging federal actions.