NEW YORK--(BUSINESS WIRE)--In 2015 U.S. Local Governments should expect moderate revenue growth, controlled spending, and mixed long-term liabilities, according to a Fitch Ratings report.
'Fitch believes that few local governments it rates are still struggling to reduce spending to compensate for a combination of weak revenue performance and pension payment increases. Now the challenge is long-been-postponed spending, including wage increases, service restoration, and infrastructure and facility maintenance needs. Fitch believes this will continue in 2015, but is a much more manageable challenge than the heavy cuts required during the downturn,' said Amy Laskey, Managing Director.
'There will likely be instances of spending growth overtaking revenue increases but Fitch expects structural balance to prevail. Most local governments have been able to preserve or restore reserves to prudent levels that would provide a cushion if an unexpected downturn occurred.'
Fitch believes there is a shifting focus by management and the public to the total cost of labor, including benefits and post-employment compensation. Momentum to curb increases in these aggregate costs appears to be continuing slowly even though the economic picture is no longer stressed.
Fitch anticipates a moderate increase in local government debt issuance to address capital needs. While the increase is not anticipated to be significant, the debt instruments used may continue the recent shift to products with less transparency. The increased use of direct loans rather than public debt offerings may be advantageous to issuers but can potentially reduce the level of information available to an entity's other creditor.
Both the Detroit and Stockton bankruptcy plans were deemed fair and equitable by the judges despite disparate treatment of creditors. Most notably, existing pension plan participants received little, in Detroit, or no, in Stockton, impairment. Both judges ruled that pension payments could be impaired in bankruptcy, but agreed with the importance of attracting and retaining qualified employees. Both concluded that providing pension benefits at current or near-current levels is essential to this goal.
Fitch believes this may have ramifications for the priority of payments to creditors in other distressed municipalities. A plan of adjustment for San Bernardino is expected by mid-2015.
For more information, a special report titled '2015 Outlook: US Local Governments' 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: 2015 Outlook: U.S. Local Governments