WASHINGTON - The recession technically ended just over a year ago, but states have shown virtually no signs of recovery, according to the Center of the Study of the States in Albany, N.Y.
Net changes in states' credit ratings show that the recession hit states the hardest in 1991 and almost as hard this year so far, the center said in a report that makes use of a new method the group developed for judging the financial strength of states.
"Although many economists believe that the recession may have ended in the spring of 1991, changes in credit ratings are more consistent with the alternative view that the recession has continued into 1992," as far as states are concerned, the center said in the report, titled "Credit Rating Changes: An Indicator of State Fiscal Stress."
With negative growth for at least two straight quarters, the economy was in recession during the last half of 1990 and the first quarter of 1991, and has been in a slow recovery ever since. But the annual rate of net credit rating downgrades tells a different story for states, the reports says.
So far in 1992, Standard & Poor's Corp. and Moody's Investor Service each have made two downgrades of state ratings and no upgrades, yielding a net total of four downgrades. That compares to nine downgrades and no upgrades for all of last year, according to the report.
"The fiscal stress felt by states in 1991 is still with us," said Sarah Ritchie, the author of the report and the center's assistant director. She pointed out that 1991 was the worst year for states in terms of net downgrades in at least the last 30 years. Ms. Ritchie said this is the first time trends in ratings changes have been used to tract trends in states' fiscal condition. The method is not intended to replace other measures, but to provide "an interesting and creative" alternative, she said.
The trend in net downgrades, "confirms what most of the other indicators are saying right now," Ms. Ritchie said. Other indicators include tracking states' reserve levels and tax increases to compensate for budget shortfalls, along with economic indicators, such as unemployment rates and personal income levels within states.
With five months left in 1992 and four downgrades already in the bank, this year is not that far off last year's record-setting pace that yielded a total of nine downgrades.
However, Ms. Ritchie said, state fiscal health measure are now showing that state are beginning to see a faint glimmer of light at the end of the recessionary tunnel. "It looks like their fiscal problems won't be quite as severe in 1992," she commented.
Ms. Ritchie cited a recently released report by the National Conference of State Legislatures saying that states are planning fewer tax increases this year to meet expenses and that their reserves are improving slightly.
In general, Ms. Ritchie said, tracking credit rating changes is a valid measure of state fiscal conditions. She added, however, that the report points out a significant drawback to ratings trends. "No single indicator of fiscal stress is adequate by itself," the report says.
Ms. Ritchie added that analysts at Standard & Poor's and Moody's expressed some trepidation about using ratings trends as a gauge for the current financial condition of states. She said they suggested that a state's credit rating is designed to reflect the state's long-term ability to pay back debt.
And the report points out that state credit ratings are seldom changed. "The rating agencies usually wait until budget problems are severe and obvious before issuing downgrades," a passage says.
