OREANDA-NEWS. Ratings on all U.S. states will carry a Stable Outlook into next year for the first time since the downturn, though the sector will not be without its ongoing challenges, according to Fitch Ratings in its 2016 outlook report.

With stable credit trends, the most significant driver of rating changes next year will be Fitch's revised tax-supported rating criteria. Final methodology will be in place in early 2016, with minimal changes expected for state ratings. 'Only an economic cycle of unusual depth or duration would result in a higher level of rating transition for U.S. states,' said Managing Director Laura Porter.

That said, budget negotiations in some states became increasingly contentious in 2015. 'Budget managers face ongoing demands for additional spending on one side and tax relief on the other, and the pace of revenue growth is insufficient to satisfy all,' said Porter. Soft crude oil and natural gas prices will also continue to weigh on energy states, with revenues to remain weak well into next year. Medicaid also remains a key focus.

Discussions around the Affordable Care Act will shift from increased enrollment towards absorbing the new expenses that expansion states are scheduled to take on from the federal government in the next fiscal year. Another pressure point for state ratings in 2016 revolves around transportation. States will increasingly turn towards the public private partnership (P3) model for larger, more complex projects. Pension contributions will also continue to rise next year due to past investment losses and contribution practices, use of more conservative assumptions and demographic trends.