• There was a temporary upswing in municipal bond credit quality that began in 2021. Now, just three years later, municipal credit is normalizing.
• The details and path of individual credit is important again and we are closely watching across all sectors to see if expenditure demand generally and spending specifically aligns with revenues.
• There is a reluctant optimism amongst market observers as it relates to the macro-economic backdrop taking hold to begin the new year. Calls for a U.S. recession in 2024 have declined. Challenges exist in 2024 even still as global disorder takes shape.
• The credit normalization process is surely occurring in the State Government sector as officials across the nation are seeking a refreshed level of fiscal balance.
  We lowered our Local Government sector outlook to “Stable” from “Positive.” Upgrades will likely still outpace downgrades in 2024, just at a lower pace this year.
• We also lowered our School District sector outlook to “Stable” from “Positive.” We are not expecting credit stress to develop, but factors such as enrollment declines are building.
  Our “Stable” outlook for the Community Facilities District sector is still appropriate as California property values remain relatively even, yet below national trends.
• The Airport sector has returned to a steadier circumstance because passenger enplanements recovered and in some individual cases even surpassed 2019 levels.
• Charter Schools could face medium term capital and operational pressures especially if lower stated aid revenues materialize.
• Obstacles in the Health Care sector remain. Entities in the sector continue to grapple with fiscal and workforce pressures. Merger activity could remain active in 2024.
• Our outlook on Private Higher Education was raised to “Cautious” from “Negative.” In both sub-categories, we are distinguishing between the “haves” and “have-nots.”
• Housing sector activity should remain active and finances strong to stable for single and multifamily housing bond issuers.
• Rising energy needs and the search for a middle ground among affordability, reliability and decreasing the sector’s carbon intensity creates pluses and minuses in the Public Power sector.
• We raised our Senior Living outlook to “Cautious” from “Negative” due to occupancy improvements, subdued labor expense increases, and moderating new supply.
• Consumption declines persisted, and regulatory and event risk remains in the Tobacco securitization sector.
• Traffic growth has evened out and financial metrics continue to be strong and should provide credit stability in the Toll Facilities sector.
• There are dauting regulatory headwinds for the Water & Sewer sector, but financial capacity remains very strong.

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