Muni Downgrade-to-Upgrade Ratio Highest in 3 Years, Moody’s Says

Downgrades of municipal debt outpaced upgrades in the third quarter by the largest margin since the 2008 financial crisis, led by state and local governments that have contended with declining revenue, according to a report from Moody’s Investors Service.

About five ratings were cut for every one upgraded, with 163 downgrades in the quarter to 31 upgrades, according to the statement. The study shows rating revisions for states, local governments, infrastructure, housing, not-for-profit health care, higher education and other agencies.

Moody’s said it expects “downgrades to continue dominating state rating actions over the near term.”

More than 100 local governments and school districts had their ratings dropped as the struggling housing market reduced property-tax revenue, the study said. That included 11 issuers that fell three or more levels, so-called superdowngrades, the statement said. School districts accounted for 41 percent of the downgrades.

The 163 total downgrades exceeded the 127 from the second quarter. The most rating cuts came in the fourth quarter of 2010, when 197 were downgraded.

The 18-month recession, the longest since the Great Depression, began in December 2007 and decreased government revenue.

The slide in U.S. state revenue slowed in fiscal 2010 as the economy stabilized, according to Census Bureau data. State tax collections in fiscal 2010 declined $14.3 billion, or 2 percent, to $704.6 billion. In 2009, they tumbled $65 billion, or 8.4 percent.

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