MOODY'S: Federal Budget Cuts Could Paralyze State And Local Governments

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Moody's affirmed its negative credit outlook for state and municipal credits Monday, citing revenue losses as Washington looks to reduce the federal deficit.

"The determination of both political parties to reduce project federal budget deficits is certain to result in reduced funding for federal programs run by the states," Moody's said in a report, obtained by Reuters. "Given the numerous challenges facing the local government sector, we believe that rating downgrades will continue to outpace upgrades until we begin to see meaningful economic growth and recovery of property values."

Although tax revenues have increased slightly, they have not risen enough to replace the loss of federal stimulus funding, the statement said. The ratings agency added that state and local governments also face pressure from ballooning Medicaid costs and public pension liabilities.

The problem is worse for local governments that are suffering from the loss of state aid, while still struggling to recover from the housing slump. Municipalities largely rely on revenue from property taxes, which have declined for two consecutive quarters. 

This raises concerns that states may have to bail out troubled local governments, Moody's said, although bond defaults and municipal bankruptcies will likely remain rare.

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Google-Zagat Is About Content, Local And Travel (GOOG)

Google's acquisition of Zagat is very smart. 

The biggest thing is that it gives Google the best local content in one fell swoop, as well as relationships with thousands of local advertisers. 

Google tried to buy Yelp but failed because Yelp wants to stay independent.

Now Google can plug the best local content into its many products and have the best local search product. 

This is important because local is the next big online advertising opportunity. Daily deals are just the tip of the iceberg.

Local businesses are spending billions on ofline advertising and for over 10 years we have been waiting for an event to tip the scales and get them to start spending online. Daily deals are that trigger event: now thousands of merchants have tried advertising online and have found it to be successful, and they will be much more open to spending on other kinds of online advertising, whether it's search or social media or something else.

By buying Zagat, Google establishes a crucial presence in that burgeoning market, both on the consumer side (excellent content distributed through Google's universe) and on the business side (most local merchants know Zagat and are open to working with them).  

Imagine pulling out your Android phone, looking up local restaurants on Google Maps, seeing Zagat reviews for restaurants around you, and perhaps a coupon for some of them. This is potentially huge. 

Other aspects to the deal:

It's a content play, which Google previously shied from. Now Google is officially in the business of content written by humans. It's a very "Larry Page" deal: ambitious, out of left field, and very clever. It's also a travel deal: Google is very serious about travel, as shown by its ITA deal, and Zagat doesn't just do restaurants but hotels. In the travel industry, the money isn't in flights bookings, but in hotel bookings. This is exactly the kind of deal that, if they were smart, Yahoo or AOL should have done. AOL especially has been trying to get into local without success and has had a strategy of acquiring premium media brands. 

This post was published as part of BI Research, a new industry intelligence service from Business Insider. BI Research provides real-time research and analysis on the technology industry. The service is currently in beta and is free. To learn more and sign up, please click here.

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