Economic incentives with risky structures hurt government credit quality

Source: Joshua Grundleger, Frank A Mamo, Emily Raimes, Rachel Cortez, Nicholas Samuels, Gregory W. Lipitz, Naomi Richman, Timothy Blake, Alexandra S. Parker, Leonard Jones, Moody’s, State and local government – US, Sector In-Depth, July 10, 2019
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Many state and local governments competing with each other for new jobs offer economic development incentives to lure businesses. The use of incentives, however, often heightens credit risk, which is particularly true in cases where a government issues substantial debtor assumes responsibility for a risky enterprise. A risky incentive structure is likely to have negative credit implications, regardless of the ultimate economic outcome….