Source: S&P Global Ratings, January 9, 2019
Although 2019 is starting out with growing economic uncertainty in the U.S., S&P Global Ratings believes the U.S. local government sector remains stable and resilient for now. Local governments benefited from positive economic trends in 2018 (such as higher GDP growth and low unemployment), but 2019 already show some signs of slowing, including lower GDP projections and higher interest rates. (For more on our 2019 economic projections, see “The New Year Will Likely Ring In A Record U.S. Expansion; Could It Be A Last Hurrah?“, published Dec. 4, 2018, on RatingsDirect.)
Slower GDP growth and mounting fixed costs can start to put pressure on states before local governments, but local governments can feel the impact relatively quickly. (For more on our state sector outlook, see “U.S. State Sector 2019 Outlook: Caution – Slower Speeds Ahead,” published Jan. 8, 2019.) Should state revenue sharing decrease, other costs be pushed down from the state level, or other localized pressures stem from federal policy changes such as the Tax Cuts and Jobs Act (TCJA) or tariff increases, we believe some local governments will need to start showing their resilience and make difficult budget choices sooner rather than later, or risk credit deterioration.