(Reuters) – Personal income tax collections rose by 37 percent in April from a year ago, according to a sample of states, but the improvements may not continue as a still-shaky economy, tax cuts in some states and federal budget woes could team up to depress revenue growth.

Excluding California, which had the biggest gain of the 21 states that have so far reported collections in April, the total increase was still a solid 22 percent.

The reports showed collections were up by a median 24.41 percent in April – when taxpayers face a mid-month tax filing deadline.

In April 2012, for all the states which collect personal income taxes the nationwide increase from the year before was a more modest 7.1 percent, according to data from the Rockefeller Institute of Government, which tracks state revenue. The median change among all states stood at 8.6 percent.

“There is nothing going on in the underlying economy that could support those kinds of increases on an ongoing basis,” said Don Boyd, a senior fellow at the Rockefeller Institute.

Seven states – Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming – collect no personal income tax, while two, New Hampshire and Tennessee, only tax dividends and interest income.

Because tax cuts passed under former President George W. Bush were set to expire at the end of 2012, many taxpayers sold investments or made other financial moves in the waning days of last year to avoid potentially steep tax bills in 2013. In addition, some companies made special dividend payments to investors, while some employers may have accelerated bonus payments to executives.

This burst of income buoyed states, which often pattern their tax codes after the federal government’s. The Congressional Budget Office earlier this week slashed its federal deficit forecast, largely due to rising personal income tax revenue at the national level.

Personal income taxes provide 36.3 percent of state revenue, followed by sales taxes, which represent 31.5 percent of the money all states bring in, according to the U.S. Census.

Boyd said states should understand that the big revenue jumps they are seeing may not be ongoing. A recent report by the institute urged states to be cautious, pointing to data suggesting a still weak economy.

In Illinois, income tax collections jumped by 33 percent to $3.14 billion last month, according to a legislative commission report.

The Commission on Government Forecasting and Accountability warned that Illinois’ jobless rate, which at 9.5 percent in March was the second-highest among states, and other factors make it dangerous to “assume that the current good fortune will continue into the upcoming fiscal year.”

Governor Pat Quinn said the one-time revenue surge will be used to pay down the state’s backlog of unpaid, overdue bills, which have topped $9 billion despite the fact the state increased its flat personal income tax rate by 67 percent in 2011.

California’s nearly 74 percent jump in personal income taxes paid in April compared to April 2012 was the biggest among the states.

The revenue surge in California partly reflected the effect of increased income tax rates for wealthy taxpayers approved by voters in November. The new rates were retroactive to last year.

Still, collections were $275 million, or 2.2 percent, below the estimate in Governor Jerry Brown’s budget.

“This was largely due to fewer returns filed and more refunds paid out than expected in the month of April,” said a report from State Controller John Chiang.

Kansas, which had one of the smallest increases – 5.7 percent – in the sampling of states, restructured its personal income tax in 2012 by reducing rates and increasing deductions.

MORE TAX CHANGES AHEAD?

States, which enacted a slew of tax changes in 2009 to deal with the crippling effects of the 2007-2009 recession, have once again turned their attention to taxes now that their economies have largely stabilized, said Todd Haggerty, a policy analyst at the National Conference of State Legislatures.

A recent survey by the group found 35 states taking up tax reform in their current legislative sessions, with 16 eyeing changes to personal income taxes, he said, adding that tax reduction proposals slightly outnumber tax hikes.

On Monday, Oklahoma Governor Mary Fallin signed into law a bill that phases in a drop in the state’s top 5.25 percent income tax rate to 4.85 percent in 2016. North Dakota Governor Jack Dalrymple earlier this month signed a $200 million, or 20 percent, income tax cut for individuals. Minnesota lawmakers are working on legislation to hike the income tax rate for high earners.

Another factor playing into income tax collections is the fallout from the U.S. government’s debt crisis, which led to across-the-board spending cuts that started in March.

Virginia, which has a sizeable share of federal workers and contractors, only saw a 5.5 percent increase in individual income taxes paid last month versus a 16.2 percent jump in April 2012.

Employers and shoppers in Virginia grew cautious as negotiations over the so-called fiscal cliff revved up last fall, which meant the federal cuts also hit the state’s sales taxes.

“We expected a little bit of cooling. Remember we’re probably affected more by the federal government than pretty much any other state, with the seat of the national government at our doorstep,” said Virginia Finance Secretary Ric Brown, adding that income tax revenues are still ahead of the projections used to draft the budget.

“We went to the conservative side, thinking that was the best course for us in the revenue forecast. That has probably proved to be a good decision for us as we come down to the wire this year,” he said.

(Reporting by Karen Pierog and Lisa Lambert, additional reporting by Jim Christie; Editing by Tiziana Barghini and Carol Bishopric)

The economy has been recovering but many local governments
are buckling under a combination of stresses on their budgets,
with places such as Stockton, California, in bankruptcy.

“Revenue and spending pressures from the sluggish economic
recovery, including soaring pension costs, have intensified
credit stress faced by local governments,” Moody’s said in its
annual report on municipal defaults.

In 2012, there were five Moody’s-rated defaults and 23 since
the beginning of the recession in 2008, with an average of 4.6
defaults per year, up from 1.3 in the 1970-2007 period.

“We expect states and the vast majority of local governments
to continue to do the hard work of rebalancing and adjusting
their budgets,” it said. “Given long-term demographic trends,
cuts in federal spending, and substantial underfunding of
pensions and other entitlements, this hard work is by no means
over, and will need to continue for some time.”

During and after the recession, state and local revenues
plunged to record lows. At the same time, the financial crisis
ravaged the returns on public pension investments, the primary
source of funding for most retirement systems. Revenues are now
back at pre-recession levels and many pensions have made
reforms, but the federal government is embracing spending cuts
that threaten both the grants cities and states receive and
their revenue in general.

The five defaults among Moody’s rated issuers last year
included two towns, Stockton and Wenatchee, Washington.
KidsPeace, a non-profit in Pennsylvania, and American
Opportunity for Housing in Colinas, Texas, along with
California’s Oakdale Sewer Enterprise, also defaulted.

Particularly, there has been a rise in speculative-grade
rated governments and risks remain in healthcare, Moody’s said.
Multi-family housing bonds are stressed by historically low
interest rates, which can hurt housing projects’ cash flow and
threaten debt repayment, Moody’s said.

Last August the Federal Reserve Bank of New York said
defaults are more numerous than rating agencies such as Moody’s
report. Combining data on unrated and rated bonds, researchers
at the bank found that from 1970 to 2011, there were 2,521
defaults, compared with just 71 listed by Moody’s.

Usually, bonds sold by smaller municipalities or authorities
and carrying higher risk of default do not have ratings from
Moody’s, Standard & Poor’s or Fitch Ratings.

Moody’s said defaults in 2012 came close to reasonable
expectations, but that “over the longer term – and even since
the advent of the financial crisis in 2008 – have been so
infrequent as to suggest that our rating distribution on the
whole may be too low.”

Still, it said it has actively lowered ratings in
recognition that credit risk has increased.

Analyst Meredith Whitney predicted a large cascade of
defaults two and a half years ago. Even though her forecasts did
not came true, they cast a pall over demand for bonds. Last
month, a Securities and Exchange Commissioner raised the
possibility of a municipal “Armageddon” related to recent
bankruptcies and the looming rise of interest rates.

Commissioner Dan Gallagher said the bankruptcies could set
legal precedents ending the long-held tradition of fully
repaying bondholders when a local government goes under.

“Local government defaults are necessarily high-profile
events because of their rarity, of course, but also because of
their consequent power to set precedents and expectations
ranging from loss recovery rates to bankruptcy case law,”
Moody’s said.

It is the first time the U.S. Securities and Exchange Commission has charged a municipality for making misleading statements outside of the disclosure documents provided in bond sales.

Harrisburg agreed to settle the charges without admitting or denying the findings in the SEC’s order to cease and desist. The city did not pay any monetary penalty as part of the settlement and the SEC did not name any particular individuals.

The case should “emphasize to public officials who wish to avoid personal liability under federal securities laws that they should take steps to reduce the risk of misleading investors,” said Elaine Greenberg, chief of the municipal securities and public pensions unit at the SEC’s enforcement division.

She declined to say whether the SEC will consider charging any individuals in the Harrisburg case.

The SEC unearthed inaccurate, misleading or missing information in various city presentations, including a budget, a mid-year financial statement and a State of the City address.

Among other alleged omissions and late filings that span several years and two mayoral administrations, Harrisburg officials allegedly failed to mention in a 2008 financial report that a major Wall Street credit rating agency had downgraded the city’s outstanding debt, the SEC said.

“There was a dearth of information out there regarding Harrisburg’s financial condition at a time when Harrisburg should have been making investors aware of its troubles,” Greenberg told Reuters.

STEPPED UP SCRUTINY

Alongside the charges, the SEC issued a report saying that local officials may be liable under federal securities laws for public statements made in the secondary market for municipal securities.

Greenberg said the SEC issued the report “to broadly address these issues that have never been addressed before.”

The SEC has stepped up its scrutiny of the municipal bond market since last summer, when one of its commissioners, Elisse Walter, released a report that had been years in the making calling for stricter regulatory enforcement and increased investor protection.

That has led to a campaign of naming and shaming of municipalities by the regulator.

Last Monday, the SEC accused Victorville, California, of defrauding investors by, in part, giving them false information about the security of bonds used for an airport hangar project.

In March, the SEC settled fraud charges with Illinois over allegations that the state repeatedly misled investors about its underfunded pensions.

James Spiotto, head of the bankruptcy group at the law firm Chapman and Cutler in Chicago, said that “whenever the SEC takes a position on a matter, it’s a reality check for those in the market.”

The accusation could further damage Harrisburg’s credibility in the $3.7 trillion U.S. municipal bond market as it seeks to reassure investors and finish implementing its recovery plan.

The city is now finalizing the sale and lease of various city assets – including its troubled trash incinerator, which sank it into debt that now tops $340 million.

Harrisburg went bankrupt in October 2011, but state lawmakers later blocked the bankruptcy and a judge threw it out.

According to the SEC, investors had to make trading decisions “based on inaccurate and stale information” about Harrisburg’s financial condition during the trash burner crisis. That was largely because the city did not provide annual financial reports and other notices such as interest payment delinquencies.

For example, Harrisburg’s 2009 budget indicated that Moody’s Investors Service had a top-notch rating of triple-A on its debt, based on its bond insurance. But by December 2008, Moody’s had announced its downgrade of the city’s general obligation bond rating to junk at Baa1, the SEC said.

Under Mayor Linda Thompson, Harrisburg has tried to catch up on financial filings it should have made years ago – in particular, its comprehensive financial reports – but the city’s 2011 report has still not been published.

Thompson’s office referred questions to the city’s law department, which did not reply to a message seeking comment.

Former Mayor Steven Reed also did not reply to an email seeking comment.

Thompson took office in January 2010 after ousting Reed, who occupied the job for 28 years. Thompson is now seeking to defend her position in this year’s Democratic primary elections.

One of the rival candidates, independent bookstore owner Eric Papenfuse, said the SEC’s findings “expose a continuing pattern of fraudulent and misleading practices.”

A previous state-appointed receiver for Harrisburg requested a criminal probe into the incinerator deals. A local prosecutor told The Patriot-News in April that a criminal investigation is still a possibility.

(Reporting by Lisa Lambert in Washington, Hilary Russ and Jonathan Stempel in New York; Editing by Leslie Adler and Tiziana Barghini)

Since sequestration began on March 1, states have warned they would not step in to make up for lower federal funding on programs. A survey released by the National Conference of State Legislatures on Thursday showed that they indeed are not compensating for the reductions, but are setting aside reserves in case the cuts slow their future revenues.

The cuts, which are intended to total $1.2 trillion over 10 years, directly affect 20 percent of the grants states receive from the U.S. government. Rating agencies say sequestration also could have indirect consequences, primarily lowering states’ revenues and pushing up spending demands.

For most states, fiscal 2014 begins July 1. The legislatures group found that only five states and the District of Columbia have budgeted sequestration offsets.

“We didn’t feel it was our role, particularly at this juncture, to come rushing in to the rescue with state monies to replace lost federal monies,” Colorado State Senator Pat Stedman, who chairs the legislature’s joint budget committee, said of Colorado’s decision not to offset sequestration.

“States don’t know what to expect out of Washington. We’re not seeing anything that instills confidence in the federal budget process,” he added.

States will receive $18.02 billion less in federal aid this fiscal year compared with last, according to a March report from the Federal Funds Information for States, which tracks grants to states. Fiscal 2013 ends September 30 for the federal government.

Meanwhile, states addressing sequestration in their budgets are creating cushions in case their revenues drop as part of the cuts’ broader economic effects, the survey showed.

One of the states that will feel the greatest impact, Maryland, has boosted its general fund balance to $298.9 million and will have a reserve fund of about $767.6 million. Utah, meanwhile, now requires federal aid reductions be included in calculations of rainy day fund deposits.

With the possibility of furloughs and lay-offs, as well as lower federal spending on rents, supplies and contracts, state tax revenues could easily fall, said Anne Stauffer, project director of the Fiscal Federalism Initiative at Pew Center on the States, who has worked in the New Mexico budget office.

“They’ll have to decide whether they are going to find other sources of revenues…. or they’re going to have cut back on services and programs that serve their residents,” she said. “Those are always difficult decisions to make.”

LINGERING UNCERTAINTY

For many states, sequestration is a harbinger that the U.S. government will continue making massive spending cuts but not keep them abreast of where or when the reductions will occur. Details about sequestration are still trickling out even now, as Congress modifies some of the cuts.

“It really is the uncertainty and the lack of control,” said Pew’s Stauffer.

New Jersey has not included sequestration offsets in its budget, but is considering a proposal from Governor Chris Christie to set aside $4 million to meet future needs that could emerge from federal cuts, according to the survey.

Oklahoma is weighing legislation “to improve future contingency planning for sustained reductions in federal grants.” Idaho is already talking about possible supplemental budgets next year, according to the survey.

Alabama lawmakers are scrambling to finish the state’s budget in the remaining four days of their legislative session, according to Norris Green, director of the state’s legislative fiscal office. In its version of the budget, the Alabama House of Representatives has left $66 million “on the table,” to handle possible shortfalls from sequestration and the state’s new tax credit bill.

“To me that would be the answer to the question of ‘How did they react to things going on at the federal level?’ They just didn’t spend all the money that they hope or think would be there,” he said. “They left some money in case they were wrong.”

REVENUES RISING

At the end of 2012, states’ revenues finally returned to peaks they reached before the 2007-09 recession, when adjusted for inflation, according to the independent Rockefeller Institute of Government.

Still, states are nervous about any possibility their revenues will plunge. To keep their budgets balanced, they slashed spending, hiked taxes, raided reserves and turned to the U.S. government for help during and after the recession. Now, they are hoping to use any gains to restore spending or reduce taxes, not cover federal costs.

“Our tax revenues are starting to rebound,” said Stedman of Colorado, where federal grants provide 7.3 percent of state revenue and federal spending makes up 7 percent of the gross domestic product, according to Pew. “But we’ve gone through three years of serious budget cuts and, with our state general fund, we are appropriating those dollars toward state responsibilities.”

Generally, state officials’ outlook “is one of stability, with a dose of uncertainty, as states continue to plod their way through an extended economic recovery,” said NCSL, which represents lawmakers in all the states and territories.

The survey found that in 23 states and the District of Columbia, personal income tax collections, the largest revenue source for most states, are exceeding estimates and in 17 states they are on target. Only in Minnesota, Puerto Rico and the U.S. Virgin Islands are personal income taxes below forecasts. Not all states levy income taxes.

Sales taxes beat expectations in only five states and the District of Columbia and came in as forecast in another 27 states.

(Reporting by Lisa Lambert; Editing by Dan Grebler)

“Bank loans provide issuers with access to capital, supply needed cash flow…and can be easier and less costly to obtain for an issuer than a public debt issuance,” a task force that included members of nine major banking, investing, trading, and bond organizations said in the white paper.

But a loan could “introduce potential risks that may impact a bondholder’s willingness to continue to hold the issuer’s bonds, affect bond ratings or impact pricing in the secondary market.”

The climb in borrowing, either by selling bonds to banks or through direct loans, has been swift and steep. U.S. banks held a record high level of municipal bonds and loans in the final quarter of 2012, $363.1 billion, according to the Federal Reserve, one of the few sources of data on the loans.

The public is often in the dark about the details of the borrowing, with investors and regulators sometimes having to wait for annual statements to learn loans even exist.

“I think it’s great that there’s again another opportunity, another tool for state and local governments to tap, but I do think we do need to be vigilant about some of the pitfalls in that private funding market,” Municipal Securities Rulemaking Board (MSRB) Executive Director Lynnette Kelly said last month.

“What are the terms of those bank loans and do state and local governments really understand the risks involved with bank loans? Are those loans being disclosed? Is there a refinancing risk in five years, seven years, 10 years – whenever these great loans come due?” she added in a speech to a meeting of state treasurers.

The MSRB is a self-regulatory organization that writes the rules for the market that the Securities and Exchange Commission enforces. In a statement on Wednesday, Kelly commended the task force for assisting issuers by laying out possible ways to disclose the loans.

Issuers do not have to provide offering documents when they take out the loans, and they do not have to tell traders in the secondary market about them. Last year, though, the MSRB began pushing for voluntary disclosure.

The task force, which included representatives from the American Bankers Association and the Securities Industry and Financial Markets Association, suggested disclosing bank documents such as the financing agreements or providing summaries that cover the loan’s terms. It emphasized that issuers should promptly post the information.

Banks have long made tax-exempt and taxable bank loans to issuers, but since 2009, they have been more willing “to make an increasing amount of tax-exempt bank loans to issuers as an alternative to publicly offered tax-exempt bond issues,” according to the white paper.

The 2009 federal stimulus plan raised the amounts of “bank-qualified obligations” that banks could hold, as part of a grander scheme to thaw a municipal credit freeze. In 2009 and 2010, issuance of the obligations doubled.

Essentially, the obligations are exceptions to part of the tax code that prevents banks from deducting the carrying cost of municipal bonds from their taxes. By doing so, the tax code eliminates the appeal of most tax-exempt debt for banks.

When the stimulus plan expired issuance of the qualified obligations slowed, but the public sector continued relying on banks in general, the task force found.

“Contrary to the expectations of many participants in the municipal market, however, banks have continued to make a substantial amount of bank loans on a non-bank-qualified basis since January 1, 2011,” according to the white paper.

Many loans are being used as substitutes for the liquidity facilities and letters of credit that banks provide to back variable-rate demand bonds, according to Thomas Jacobs, who tracks products related to municipal bonds as a vice president for Moody’s Investors Service.

Direct borrowing is less expensive for both issuers and banks than selling variable-rate bonds with support facilities, according to the rating agency.

(Editing by Lisa Shumaker)

S&P linked the above-average credit level of U.S. states, of
which only six, or 12 percent of the total, have debt ratings
below AA, to federal government spending and said cuts in
programs such as Medicaid, while unlikely, were a potentially
major risk.

“We believe the sector could be in for a bit more rating
turbulence if states are left to bear more of the brunt of
national recessions than they have in recent cycles,” S&P said
in a report.

Federal support provided a stabilizing effect on economic
conditions and a supportive role in state credit quality, it
said, noting that 41 percent of the sovereign credit ratings of
euro zone countries were ‘BBB+’ or lower, and that no U.S. state
fell to below ‘A-’ during or after the 2007-09 recession.

“We attribute much of the state sector’s above-average
creditworthiness to countercyclical federal fiscal policies that
involve reduced federal tax liabilities and large scale outlays
during economic downturns,” it explained.

“We believe state budget problems would have been
significantly worse following the recession were it not for the
economic stimulus and fiscal aid to states,” said Standard &
Poor’s.

“By our estimates, the direct aid to states would come to
equal about 24 percent of their cumulative budget deficits
during the five fiscal years 2009 through 2013,” S&P found.

STIMULUS PLAN

Almost since the day it was signed into law in early 2009
the stimulus plan, known as the American Recovery and
Reinvestment Act, has been a political piñata, with
policy-makers and commentators alternately beating it as a
package of wasteful spending and financial mismanagement.

It sent $140 billion to states in the largest such transfer
in U.S. history, mostly through money for the Medicaid health
insurance program for the poor and for education, the two
largest spending categories for states.

The recession hit state budgets late, with revenue beginning
to dive in 2008 as unemployment rose. Because all states except
Vermont must end their fiscal years with balanced budgets, they
raced to make emergency spending cuts, institute temporary tax
and fee increases, and borrow.

They also turned to the federal government for help. The
U.S. government now sends state and local governments more than
11 times the money it granted them in 1960, according to
President Barack Obama’s annual report on the economy to
Congress released in March.

For S&P, the ability of states to lean on the federal
government in times of stress is a plus, as is the way the aid
is distributed. The U.S. government often uses unemployment
rates to determine where to provide assistance, so that places
experiencing “economic trauma” receive the most support.

“From a global perspective, fiscal federalism in the U.S.
has evolved to support relatively high resource allocation
efficiency, which, in our experience, is beneficial to credit
quality,” it said.

In 2011, when the Recovery Act ended, states warned they
would fall off a “stimulus cliff,” and some slashed
spending. That summer, Congress and Obama began a fight over the
federal budget that continued through the “fiscal cliff” scare
at the end of 2012 and the beginning of automatic spending cuts
known as sequestration last month.

Still, 82 percent of the funding state and local governments
receive from the federal government is off-limits in
sequestration, according to S&P, while the new national
healthcare law provides extra money to those states that offer
Medicaid coverage to a wider population.

The rating agency does not anticipate a large “paradigm
shift” in how the federal government and states interact.

“While we acknowledge that such wholesale changes are
possible, our current institutional framework and state ratings
distribution do not assume they will occur,” it said.

The bipartisan proposal cleared a procedural hurdle after 63 members in the 100-seat Senate backed it; the measure previously was held up by opponents. Critics largely cited potential burdens on small businesses, many in states that do not impose sales taxes.

Earlier this week, nearly three-quarters of Senators backed the measure, suggesting lobbyists – including online retailer Ebay and the financial industry – were successful in changing lawmakers’ minds.

A final vote on the legislation had been expected this week but was pushed back to the week of May 6.

At issue is the ability of states to collect taxes from online merchants without a physical presence within their borders.

The bill would extend states’ authority to require retailers to collect tax outside their physical borders, though it would not require states to do so. It would exempt merchants with online annual out-of-state sales of $1 million or less.

The legislation faces much tougher odds in the Republican-controlled U.S. House of Representatives, where some Republicans view it as a tax increase.

OPPONENTS STEP UP LOBBYING

Anti-tax activist Grover Norquist told signers of his anti-tax pledge that supporting an online tax would be tantamount to reneging on their promise not to raise income taxes.

He was on Thursday plotting a strategy to stop the bill’s momentum in the House.

“You do this new thing where you start to make it easy for people to tax across state lines,” Norquist told Reuters in an interview, saying the legislation could lead to states pushing to collect income and other taxes beyond their borders.

Norquist said Republicans will introduce an amendment to limit the legislation, to “smoke out the advocates of exporting taxes across state lines,” he said.

Backers say the measure explicitly rules out new taxes and only applies to sales taxes. The nonpartisan Congressional Budget Office said the legislation will have no impact on the federal budget deficit.

Opposition is led by eBay, whose chief executive has been encouraging its millions of users to oppose the effort.

Financial firms also weighed in this week against the measure, worried that it would give states new authority to impose taxes on financial transactions over the Internet.

Opponents also include Democratic Senator Max Baucus, the chairman of the Senate Finance Committee. His fellow Democrats are bypassing his panel to bring the measure straight to the Senate floor.

Supporters of the measure include brick-and-mortar retailers such as Wal-Mart Stores Inc and Best Buy Co Inc and cash-strapped state governments, including the National Governors’ Association.

(Reporting By Kim Dixon and Lisa Lambert; Editing by Cynthia Osterman)

(Reuters) – Unemployment rates dropped in most U.S. states in March from the year before, including California where joblessness fell to a four-year low, as the recovery picked up in places hit hard by the housing downturn.

Federal data released on Friday showed that, altogether, unemployment rates fell from March 2012 in 39 states and the District of Columbia, increased in eight, and were the same in three. From February, rates dropped in 26 states and the District of Columbia, rose in seven and were unchanged in 17.

Nevada had the sharpest decrease over the year – the rate fell to 9.7 percent from 11.6 percent in March 2012. In California the unemployment rate fell to 9.4 percent, the lowest since December 2008 and more than a percentage point below March 2012, when it was 10.7 percent.

California and Nevada, two places where housing had flourished, have consistently had some of the highest unemployment rates in the country over the last few years. Even with the drops in March, Nevada held the highest unemployment rate of all the states and California the third highest.

Nevada’s rate also rose from 9.6 percent in February and the state lost 2,900 jobs during the month, when seasonally adjusted.

“So far this year, job growth appears to be slowing a bit after exceeding expectations in the second half of 2012,” said Bill Anderson, chief economist for Nevada’s employment department, in a statement.

“Despite the decline in non-farm payroll jobs and a slight increase in the unemployment rate, nearly all over-the-year comparisons are evidence of an ongoing mild recovery in Nevada’s labor market,” he added.

Rhode Island had the second biggest decline from the year before, with its jobless rate dropping to 9.1 percent from 10.6 percent in March 2012, followed by Florida, where the rate was 8.9 percent compared to 7.5 percent the year before.

In Idaho, Washington, Hawaii and Colorado, the jobless rates also were more than a percentage point lower than a year before.

Unlike previous downturns, the 2007-09 recession was fairly uniform, sparing only a few states. The recovery, though, began unevenly, with states rich in oil, natural gas and commodities pulling ahead and those where housing had been the major source of jobs limping for years after the real estate market collapsed.

Meanwhile, in March the Illinois jobless rate rose the most since March 2012 – to 9.5 percent from 8.8 percent.

The state also had the second highest jobless rate in the country last month, followed by California and Mississippi, even as it added 36,000 jobs from the year before, according to its employment department.

“Economic uncertainty nationally and abroad dampened our country’s job growth. When that happens, Illinois’ share tends to be a negative number,” said Jay Rowell, director of the employment department, in a statement.

“Monthly snapshots capture a moment in time. When those moments are evaluated together, we see progress away from a global recession and through a stubborn economic growth cycle,” he added.

Indiana, Mississippi, New Hampshire, Pennsylvania, Delaware, North Dakota and Wisconsin also saw rate increases from March 2012. Meanwhile, the rates were unchanged in Alabama, New Mexico, and West Virginia.

NEW JERSEY’S UNEMPLOYMENT RATE TUMBLES

From February, the jobless rate increases were mild, with Louisiana seeing the biggest rise, to 6.2 percent from 6 percent.

Alaska, Florida, New Jersey, Rhode Island, Utah, Vermont, and Virginia experienced the largest decreases – 0.3 percentage points each.

New Jersey’s unemployment rate drop in March to 9 percent was greeted as good news by the state’s political leaders.

Last year, the jobless rate climbed steadily to the highest level in 35 years, 9.8 percent in July. Along with neighboring New York, New Jersey was the only state where the average jobless rate increased in 2012 from 2011. The signs of a slow recovery prompted New Jersey Governor Chris Christie to abandon claims that the state was in the middle of a comeback.

But now the rate has edged down and the state added 10,400 private sector jobs in March.

“Once again, jobs and unemployment are moving in the right directions, reflecting the growing strength in the state’s economy,” New Jersey’s Chief Economist Charles Steindel said in a statement.

(Reporting by Lisa Lambert, additional reporting by Hilary Russ in New Jersey;editing by Sofina Mirza-Reid)

The first quarter saw the most upgrades in more than three
years, as the total number of all Fitch’s rating changes
increased from the fourth quarter of 2012.

“The increase in the number of downgrades is a bit of an
anomaly,” the credit rating agency said, even though this marked
the 17th quarter in a row its public finance downgrades
outnumbered upgrades.

Fitch recently changed its criteria for assessing the credit
quality of charter schools, which are part of the public
education system but operate independently, frequently under the
management of a private company.

When Fitch used the new approach, it found that charters
schools’ “operating history and financial and debt profile are
generally speculative grade.”

“Fitch noted rapid deterioration in fundamental credit
quality for charter school transactions that exacerbated the
negative effect of the criteria changes,” it said.

“This rapid decline in credit quality illustrates the
volatility inherent in most charter school financings and is one
factor limiting the ratings for the sector.”

Late on March 8, Fitch dropped the ratings of charter
schools in 11 states across the country including ones in
Houston, Texas, managed by Kipp, Inc, an industry leader.
Colorado had the most downgraded schools.

The reasons for the ratings cuts varied slightly. For the
schools managed by KIPP, which stands for the Knowledge is Power
Program, Fitch cited high leverage. For Enterprise Charter
School in Buffalo, New York, Fitch said it was concerned
primarily about academic performance.

The agency’s consistent concern for many of the schools was
a limited “financial cushion.” At the time, it said its charter
school ratings would likely remain predominantly
speculative-grade for the foreseeable future.

When measured by par amount, Puerto Rico accounted for more
than half of the ratings cuts in the quarter. Fitch knocked the
financially troubled island’s debt down by two notches over its
massive budget problems and concerns that its debt levels and
pension obligations are too high.

On the flip side, a jump in upgrades “was driven by the
increase in the number of tax-supported upgrades, which was at
its highest level since the fourth quarter of 2009,” and began
when the agency raised Alaska’s rating to ‘AAA’ from ‘AA+’ in
January, Fitch said.

Alaska’s upgrade “reflects the state’s maintenance of very
substantial and growing reserve balances and the continuation of
conservative financial management practices at a time of strong
revenue performance,” it added.

When measured by par amount, San Francisco had the largest
upgrade, it said.

In December the agency said it expected above-average local
government downgrades this year as cities and counties continued
to confront a clutch of ongoing fiscal problems, including an
uneven revenue recovery, spending strains, and pension
pressures.

Another major rater, Moody’s Investors Service, made similar
warnings, saying in February its outlook for local governments
remains negative for this year. Last year, Moody’s downgraded a
record amount of debt due to economic and budget stresses and it
anticipates that rate to be slower this year.

The legislation introduced by Representative Devin Nunes of California is essentially the same as the bill he offered in 2010 that languished as unions and advocacy groups for the retirement systems objected to having the federal government intervene in state and local affairs.

Although state and local governments are dealing with high pension costs, which strain their already tight budgets, no one has yet asked the federal government for a bailout.

A corresponding bill will likely be introduced soon in the Senate by Richard Burr of North Carolina. The House bill has many of the same backers as the 2010 measure, including House Budget Committee Chairman Paul Ryan of Wisconsin.

“Often hidden by opaque accounting practices, the costs of public pension funds are driving an increasing number of states and municipalities toward insolvency,” Nunes said in a statement. “This bill will increase the funds’ transparency and eliminate deceptive accounting practices that are already shunned in the private sector.”

States and cities have frequently shortchanged their pensions over the years and when their revenues crumbled during the 2007-2009 recession, they cut back even more.

The financial crisis wrecked the pensions’ chief revenue source, investment returns. Recently, the holdings of public pension funds have recovered, but the debate over the size of their revenue gaps continues.

The Pew Center on the States estimates that states combined are short at least $757 billion to cover retirement benefits and cities are short $99 billion.

Many conservative economists and lawmakers such as Nunes say the pensions project rates of return that are too high. They say using overly optimistic investment expectations makes shortfalls appear artificially small.

Meanwhile, they question the funds’ methods of “smoothing” expenses over time, which they say masks the depth of the problems. Because pensions do not have to pay all their liabilities at once, many spread, or smooth, the amounts over a span of years. Some have smoothed liabilities across decades to create a sense that they are more manageable.

While the bill includes a variety of measures on reporting, the key requirement is to provide “realistic rates of return and tie assets to more reasonable fair market valuations.”

Under the bill, pensions that do not report their asset levels using the prescribed formulas could cause considerable financial damage. States and municipalities with employees enrolled in those pensions would lose their abilities to issue tax-exempt bonds, the key source of infrastructure funding.

PUBLIC PENSION LANDSCAPE CHANGES IN TWO YEARS

Much has changed in the last two years in the pension landscape. States such as Rhode Island instituted their own sweeping reforms as their localities tottered toward bankruptcy, and many plans have lowered their projected rates of investment returns.

On Wednesday the board of the largest pension fund, the California Public Employees’ Retirement System, known as Calpers, voted to change its smoothing methods.

“While some states have improved their pension funds, a lot of the reforms comprise the same kind of accounting gimmicks we’ve seen before. Meanwhile, municipalities such as San Jose that tried to institute real reforms are facing lawsuits from unions,” said Nunes. “With our bill, all we’re saying is that pension systems need to clearly report their true financial condition.”

Last summer, the Governmental Accounting Standards Board approved an overhaul of projecting rates of return on investments, which provide 60 percent of pensions’ revenues. Funds lacking sufficient cash to cover benefits must lower their projected rates to about 4 percent.

GASB also requires governments to disclose what their actuaries recommend they contribute to the pension plans – a way of checking if they are underfunding the systems. Employing governments provide about 20 percent of pension revenues.

Moody’s Investors Service is reviewing the ratings of 29 local governments because of concerns about pension gaps. Moody’s created its own methodology for evaluating pensions, “because the manner in which these obligations are reported varies widely, and we believe liabilities are underreported from a balance sheet perspective,” it said on Wednesday.

(Editing by Vicki Allen)