BlackRock Expects Increased Downgrades for State Borrowers (1)

The market for state and local government debt is becoming “less forgiving,” according to BlackRock Inc.’s Pat Haskell, who leads the firm’s municipal bond group.

State revenues are softening, and rainy day fund capacity has declined for the first time since the Great Recession, he wrote in his second quarter outlook report released Wednesday. The end of pandemic-era stimulus programs, slowing tax collections and rising costs are all adding to the weakness.

The combination is “driving reserve drawdowns and structural imbalances, contributing to increased downgrades and wider credit gaps,” he wrote.

At the same time, several states including Texas ...