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Muni Bond Downgrades by Moody’s in Quarter Total Most Since 2000

Moody’s Investors Service downgraded 290 municipal issuers from April 1 through June 30, the most for any quarter since 2000, led by cities and school districts still recovering from the longest recession since the 1930s.

It was the 14th-straight quarter that downgrades exceeded upgrades, Moody’s said in a report today. There were 4.4 downgrades for every rating raised. The cuts include the 90 California redevelopment authorities reduced by the New York-based rating company.

“We expect downgrades to continue outpacing upgrades in the second half of 2012 as local governments navigate an increasingly difficult budgeting environment characterized by anemic revenue growth and significant expenditure pressure on wages and post-employment benefits,” Moody’s said in the report.

Local-government tax revenue has fallen for six straight quarters, according to a report from the Nelson A. Rockefeller Institute of Government in Albany, New York. About half of Moody’s downgrades in the quarter affected bonds sold by cities and school districts, with many in California and Michigan, according to the report.

Bonds issued by Detroit, which is seeking to avoid a state takeover of its finances, and Stockton, California, which filed for Chapter 9 bankruptcy protection on June 28, were among those downgraded by Moody’s in the second quarter, according to the report.

No state general-obligation debt was downgraded in the three months through June 30, though Moody’s outlook for states remains negative as potential federal funding cuts and increasing health-care and pension costs strain budgets, according to the report.

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