State governments in the U.S. added to their collective debt burden in 2012 at the slowest pace in at least two decades, even with interest rates near historic lows, showing many were still coping with fiscal fallout from the recession that ended almost four years ago.
Total net tax-supported state debt rose 1.3 percent in 2012, compared with a 7 percent 10-year average, Moody’s Investors Service said yesterday in a report. The amount climbed to $516 billion from $510 billion in 2011, and the growth rate will increase slightly this year, the company said.
Even with yields in the $3.7 trillion municipal-bond market near the lowest in half a century, states aren’t adding debt as tax revenue recovers from the longest recession since the Depression and pension obligations rise. Many governments refinanced higher-cost bonds, as such sales made up 62 percent of municipal offerings last year, the most since 1993, according to Bank of America Merrill Lynch data.
“States have generally moved to a more conservative approach to debt” since the 18-month recession ended in June 2009, New York-based Moody’s said in the report. “Budgetary imbalances and expanding fixed-cost obligations have forced many states to raise revenues or severely cut services.”
“This state-level austerity spending has discouraged some states from adding new debt service to their budgets, and led to increased anti-debt sentiment,” Moody’s said.
New bond sales will remain low this year because of concern that federal fiscal policy and budget sequestration may slow the recovery and tax-receipt increases in some areas, Moody’s said. State revenue rose 4.1 percent last year, the company said.
In states such as Florida, where population growth slowed during the recession, borrowing programs to finance new schools and highways are done or almost completed and haven’t been renewed, according to the report. Collectively, state debt-service costs rose 3 percent last year, compared with an 8.6 percent 2011 gain, as yields fell to the lowest since 1965.
Connecticut has the highest net tax-supported debt per capita, at $5,185, according to the report. It was also first in 2011. Massachusetts, Hawaii and New Jersey are next highest, at $4,000 or more each, while Nebraska was the lowest, at $14.
Illinois, the U.S. state whose general-obligation debt is the lowest rated by Moody’s at A2, joined six others with “notable declines” in tax-supported debt last year, including Arizona, Florida and New York, the company said.
The largest contributors to debt growth were California, Massachusetts, Virginia and Washington, according to the report. Virginia, with top-rated bonds, ranked 19th in debt per capita, at $1,315 last year, while A1 rated California was seventh at $2,565 and Aa1 graded Washington was sixth at $2,817.
Puerto Rico, with the lowest investment-grade ratings from both Moody’s and Standard & Poor’s, has per-capita debt of $14,053, according to the report. The island of 3.7 million residents, one-fifth the population of Florida, has more than twice the net tax-supported debt of the Sunshine State.
Only California and New York, with about $98 billion and $62 billion in such debt outstanding, respectively, owe more than Puerto Rico. The Caribbean commonwealth hasn’t sold any public debt this year.
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