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State and Local Budget Update: Still Bad But Getting Better
- The state and local government sector has been a significant drag on economic performance since 2007 and is currently restraining growth by 0.25 percentage points.
- Even though the state and local government budget gaps have fallen in half, the sector is likely to remain a constraint on growth until 2013, based on the experience of the last cycle.
- In addition, the Municipal market is trading as if budget gaps have not improved since the 2009 recession, suggesting some eventual narrowing of spreads relative to Treasuries.