Moody’s Investor Service expects the federal government shutdown to be short-lived. It could negatively impact state and local governments in the Washington metropolitan area if prolonged but most local governments should be able to ride out the storm.
Says the current issue of “Moody’s Weekly Credit Outlook for Public Finance”: “The federal government shutdown … is credit negative .. because some government employees are furloughed, some federal procurement contracts are cut or reduced, and other discretionary federal services and programs are closed.”
About 29% of the nation’s 2.8 million federal workers have been furloughed, which is ominous for the Washington region where federal employees comprise 12.6% of the workforce versus 2.1% nationally. Also, Virginia localities can expect to suffer a decline in sales tax revenue (which constituted about 6.4% of Fairfax County operating revenues) as well as cuts in Virginia state aid to local governments. Aid from the state, which acts as a conduit for much federal spending, accounts for 10% to 11% of local government spending in the metro area.
Nevertheless, the credit outlook concludes, “Most DC metro area local governments have strong credit fundamentals that will help them withstand a prolonged government shutdown. These strengths include large tax bases, high wealth levels and solid reserves. … DC area local governments reserves average a robust 22.9% of operating revenues.”
— JAB
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