Sudden changes to or uncertainty about the direction of federal policy could lead to credit instability for some local governments. Weakening economic performance or the loss of municipal tax exemption through the renegotiation of the Tax Cuts and Jobs Act would negatively affect all local governments. The effects of other policy changes, such as those pertaining to immigration and tariffs, would likely be experienced more regionally or locally. State and local governments have experience absorbing short-term revenue disruptions or expenditure requirements, but significant federal policy changes could have lasting effects that require management teams to proactively address their operating budgets. On average, U.S. states receive more than 30% of their operating revenue from the federal government, whereas U.S. local governments
