Another element in investors favor? There are signs that state and local governments’ finances might be better-prepared for a recession. Their total debt has been shrinking as states and cities remain resistant to borrowing, which stands in contrast to the federal government.
Moody’s Investors Service said in a May report that 22 states had improved their preparedness for a moderate recession. They’d be able to withstand such an event without seeing a “significant” credit impact.
State officials have also been cognizant to save the extra tax revenue they’ve seen amid the longest economic expansion on record. New Jersey, one of the states municipal-bond analysts worry most about, made a $317 million deposit in the state’s rainy day fund in fiscal 2019, its first deposit in over a decade. In Connecticut, another state facing large liabilities, the 2020-21 budget includes the largest rainy day fund in the state’s history.
Municipalities “certainly look a little bit stronger if we are heading into a recession this time around,” Mondillo said.
--With assistance from Taylor Riggs.
This article was provided by Bloomberg News.