S&P Cuts Nevada's Rating by One Notch

Standard & Poor’s on Thursday cut Nevada’s credit rating by one notch to double A, citing the state’s “severe economic cyclicality” and dependence on consumer spending.

Las Vegas, Nevada
Christian Thomas | Getty Images
Las Vegas, Nevada

“The structure of the state’s economy limits its growth prospects in the absence of a robust national recovery and the revived consumer spending that such a recovery could bring,” the rating agency said. “In short, we expect the performance of the state’s economy to somewhat depend on the strength of the national economic recovery, which we view as both gradual and fragile.”

Other states, including California, Illinois and New Jersey, have suffered credit rating downgrades as they grapple with the ripple effects of the US recession.

Nevada, home to Las Vegas, boomed during the economic prosperity and housing bubble of the past decade and it was hard hit during the recession.

“Nevada provides an exaggerated microcosm of the national economic experience of the past several years,” S&P said.

Nevada has the highest statewide unemployment rate in the country, which was 14.9 percent in December. Nevada’s real estate market also leads the US in the rate of home foreclosures, S&P said.

The double A rating, which is still just two notches below triple A, reflects Nevada’s willingness to address its budget gap in a timely fashion and with austerity as well as its low total debt relative to the state’s economy, the rating agency said.

US states have faced several years of budget shortfalls as corporate, personal income and sales taxes have plummeted. All states except Vermont must balance their budgets annually, which has led to sharp cuts in spending and tax increases.

Concern also has arisen in the $3,000 billion municipal bond market – where states, cities and other public bodies raise money – that some municipalities may struggle to pay their public debts.

The financial pressure has prompted some states to challenge unions in an effort to reduce labor and pension costs. The Senate in Wisconsin, which faces a $137 million gap, this week passed a contentious anti-union measure that will restrict collective bargaining rights for many public sector workers. That came after weeks of protests in the state’s capital.