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Moody's says recession may hurt country's infrastructure

December 19. 2012 8:46PM

WASHINGTON - 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 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.

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