WASHINGTON Dec 19 Airports, toll roads,
utilities and other U.S. infrastructure are unlikely to suffer
immediately if "fiscal cliff" talks fail, but could face
financial stress should the lack of a deal lead to a recession,
Moody's Investors Service said on Wednesday.
Most economists believe that going over the cliff of tax
increases and across-the-board federal spending cuts slated for
the start of 2013 would trigger another downturn.
Moody's projects that the nation's growth rate would
contract by 0.3 percent, and the resulting recession "would
affect virtually every infrastructure sector."
There were hopes on Wednesday a year-end budget deal in the
United States was still possible.
"An economic contraction coupled with a decline in
employment and lower consumer confidence, would have a striking
impact in a number of infrastructure sectors. Most at risk is
the unregulated power company sector, which will be hit because
electric sales volumes will be lower and depressed natural gas
and power prices will further hurt margins," Moody's said.
Airports that rely on airline landing fees and passenger
concessions would be hurt as demand for flights drops. While
airport grants were not included in the automatic spending cuts,
also known as sequestration, the federal trust fund for airports
is running low and future budget debates could put it in
jeopardy, according to the credit rating agency.
Likewise, ports would suffer from a decline in cargo
shipments and toll roads would be affected by drivers staying
home or taking free roads to save money. Other areas, such as
electricity providers, could see resistance to rate hikes from
consumers worried about spending.
For more than a year, the threat of ending the federal tax
exemption granted for interest paid by municipal bonds has hung
over state and local finances. The exemption curently allows
issuers in the $3.7 trillion market to pay lower interest.
Without it, many expect the costs of borrowing for public works
to shoot up.
As President Barack Obama and Congress seek revenue raising
measures to help avoid the cliff, they have discussed capping
the tax exemption. Moody's warned "the prospect of broader tax
reforms related to tax-exempt financing status would create some
uncertainty for public infrastructure such as airports, toll
roads and public power utilities."
"These sectors rely heavily on their tax-exempt financing
status, so a change would increase costs and hurt coverage
ratios, a credit negative," it added.