S&P Global Ratings expects credit conditions to be favorable for U.S. public finance (USPF) in 2022. All of our sector views are now stable except the airport subsector, which is positive, and the parking subsector, which remains negative. The rating distribution to start the year remains strong; negative outlooks represent about 4% of total ratings compared to about 8% last year at this time.

We have published our credit outlooks for all key sectors. In each report, we provide insight on the key issues we are watching in the year ahead and answer questions that matter from a credit standpoint. The omicron variant of COVID-19 has spread quickly throughout the U.S. but the link to economic activity has been far less pronounced than the early stages of the pandemic and S&P Global's economic forecast has not changed materially (see "Macroeconomic Update," published Jan. 20, 2022, on RatingsDirect, and "Economic Outlook U.S. Q1 2022: Cruising At A Lower Altitude," Nov. 29, 2021). Continued economic momentum in 2022 should support healthy revenue growth for most public finance issuers.

Federal stimulus funds will continue to support finances across all sectors in 2022. How these funds are deployed will be a key area of credit focus. On top of the unprecedented federal stimulus, the roughly $1 trillion in total authorized spending under the Infrastructure Investment and Jobs Act represents an important shift in funding U.S. infrastructure. It will relieve some pressure on states, local governments and municipal enterprises that have had the growing responsibility of funding infrastructure for decades. S&P Global Economics expects that the infrastructure spending will have a positive multiplier effect on the broader economy over several years.

We believe that certain ESG risks may be more influential and material to creditworthiness for USPF issuers in 2022 and could lead to credit pressure. To provide an overview of these risks we have also published an ESG outlook for 2022 ("ESG In U.S. Public Finance Credit Ratings: 2022 Outlook And 2021 Recap," Nov. 29, 2021). Following is a more detailed look at key sectors including links to each report.

States

Sector view: Stable

Positive credit strengths offset by significant uncertainties, leading to stable view.  States have all come through the first two years of the pandemic holding or even improving credit quality. Much of this is due to the consistent and generous flow of federal funds, but additionally the generally highly rated sector responded to crisis as expected: taking actions to balance budgets. But as the federal monies flow, additional risks remain. We see inflationary uncertainty, coronavirus variants, and ongoing supply chain and employment challenges as potential impediments to further improvement of credit conditions. ("Outlook For U.S. States: Federal Funds Fuel Spending; Will Inflation Impede The Impact?, Jan. 4)

Local Governments

Sector view: Stable

The stable sector view reflects local governments' proactive management; economic growth; and strong federal fiscal and policy response throughout the pandemic.  Multiple rounds of federal stimulus for pandemic-induced revenue and expenditure fluctuations continue to provide a solid foundation for addressing potential pressure caused by new virus variants. When coupled with economic growth around the U.S., we expect local government credit quality to remain stable in 2022; however, borrowers will have to remain flexible to adjust to changing conditions. ("Outlook For U.S. Local Governments: Risks Remain Despite Support From Stimulus," Jan. 5)

Higher Education

Sector view: Stable

After four years of it being negative, we have revised our sector view for U.S. higher education to stable.  Most colleges and universities have successfully responded to the pandemic, with significant help from federal emergency funding and record investment gains in fiscal 2021. A return to on-campus learning in fall 2021 buoyed tuition and auxiliary revenues, but the effectiveness of health and safety measures will be critical to continued in-person learning amid new variants. While financial flexibility has improved, additional risks remain, such as inflation and enrollment pressures. Schools with weaker demand and financial profiles still have less operating flexibility and could face credit deterioration. Notably, despite their worst crisis in decades, no rated colleges or universities defaulted on their debt. ("Outlook For Global Not-For-Profit Higher Education: Out Of The Woods, But Not Yet In The Clear," Jan. 20)

Health Care

Sector view: Stable

Our view remains stable as the sector continues to weather the pandemic well--albeit with the benefit of significant federal aid.  We expect that healthy balance sheets, demand for services, and improved revenue yield will continue to support hospitals. But there are operating headwinds given significant ongoing expense and revenue pressures likely to continue over the next year. ("Outlook For U.S. Not-For-Profit Acute Health Care: A Booster May Be Needed," Jan. 6)

Transportation Infrastructure

Sector view: Mostly stable

Cautious optimism remains, despite omicron.  Our view of business conditions and credit quality across U.S. public transportation infrastructure is positive for airports and special facilities; stable for toll roads, ports, mass transit, and GARVEEs; and negative for parking. ("Outlook For U.S. Not-For-Profit Transportation Infrastructure: Mostly Stable; Airports Remain Positive As Operators Navigate A New Variant And A New Normal," Jan. 12)

Public Power And Electric Cooperative Utilities

Sector view: Stable

We expect our ratings on public power and electric cooperative utilities to remain largely stable in 2022.  Our economists expect the U.S. economy to continue to grow. They further conclude that while virus variants might delay a full economic recovery, they do not expect these developments to derail the recovery. These economic views, combined with our expectations that utility management teams will continue to constructively respond to legislative, regulatory, environmental, and operational developments in 2022, lead us to anticipate generally stable revenue streams and ratings in the sector. ("Outlook For U.S. Public Power And Electric Cooperatives: Stability Amid An Evolving Landscape," Jan. 13)

Charter Schools

Sector view: Stable

Overall, our stable sector view reflects a balance of opportunities and risks in 2022.  The opportunities are primarily driven by generally growing charter school demand, economic recovery, and the disbursement of meaningful federal stimulus funds to states and also directly to public schools, providing financial support for operations and growth in reserves. We expect continued credit stability for states and therefore at least stable per-pupil funding trends. But while financial flexibility has improved, risks remain, such as inflation, coronavirus variants, and mid-term elections. Schools with relatively strong enrollment and reserves are likely to continue to fare better, while schools struggling with enrollment declines will have less operating flexibility. ("Outlook For Charter Schools: While Growing Demand And Stimulus Funds Provide Flexibility, Risks Persist," Jan. 11)

Housing

Sector view: Stable

Our view remains stable as issuers and providers have proven resilient in managing their loan or property portfolios, with generally stable financial results.  We expect elevated nonperforming assets from the sharp downtown in 2020 will resolve this year, and that stable performance will continue despite headwinds from inflation, the coronavirus, rising rates, and employment and supply chain challenges. ("Outlook For U.S. Public Finance Housing: Strong Metrics Will Hold Up The Roof In 2022," Jan. 18)

Water And Sewer Utilities

Sector view: Stable

Robust financial performance cushions the sector from near- and longer-term pressures.  Rate-setting flexibility has long underpinned the strong financial performance that is the cornerstone of the sector; however, we believe affordability concerns could limit this strength for some. Asset resilience will be critical in meeting climate-related challenges. ("Outlook For U.S. Municipal Utilities: Stable, With Expanding Operating Margins," Jan. 19)