NEW YORK--(BUSINESS WIRE)--In 2015 U.S. States should expect growing but variable revenues, financial position stabilization, and ongoing exposure to federal action, according to a Fitch Ratings report.
'State credit has substantially stabilized in the recovery, as indicated by the 10:1 ratio of Stable to Negative Rating Outlooks and limited rating actions taken in 2014. However, risks remain weighted to the downside,' said Laura Porter, Managing Director.
After experiencing 17 consecutive quarters of tax revenue growth, state revenues were essentially flat in the first half of 2014, reflecting the reversal of the 2012 income acceleration effect.
For the current fiscal year, most states are assuming growth in line with baseline trends.
Revenue forecasting is increasingly challenging due to increased volatility in state revenue results, including from capital gains. One-time events make it difficult to identify baseline revenue growth levels, a problem exacerbated by unpredictability in stock market and commodity price performance.
As revenues recover, state budget managers, who face demands for additional spending and tax relief, have remained cautious. With the majority of gubernatorial incumbents re-elected, this approach will likely continue despite persistent pressures.
Medicaid has been the area of state budgets most challenging to control. Fitch expects Medicaid to continue to be the biggest area of focus for state budget managers in 2015. Given the dominance of Medicaid in federal funding flows to the states, any material reduction in federal support for the program could be negative for state credit, particularly in the absence of related mandate relief.
For more information, a special report titled '2015 Outlook: US States' is available on the Fitch Ratings web site at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research: 2015 Outlook: U.S. States (Proceeding with Caution)
Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria