Tags: US | Downgrade | Harm | Governments

US Downgrade Will Harm Local Governments

Sunday, 07 Aug 2011 09:36 AM

At least 15 states that rely heavily on federal spending on programs such as Medicaid, or are home to thousands of federal employees, could lose their triple-A rating because of the Standard & Poor’s downgrade of the United States.

The affected states include Maryland, New Mexico, South Carolina, Tennessee and Virginia, The Wall Street Journal reports. These states would all face increasing borrowing costs at a time of fiscal strain for their governments, especially should Washington respond to the downgrade with big cuts in spending, including layoffs of federal workers.

"It's an extreme concern to any state if their ratings were to decline in any way," Scott Pattison, executive director for the National Association of State Budget Officers, said in an interview before Standard & Poor's made its decision public. "That could have significant impacts," such as higher borrowing costs over the long term.

Though credit analysts say there are no rules dictating that the federal government have a higher rating than U.S. states or cities, having states rated higher than their sovereign government could be problematical, even though many states are in better financial shape than the federal government.

Though S&P says it will continue to monitor how additional federal spending cuts would affect the states, the agency has given very little guidance on how a U.S. downgrade would affect specific states and cities.

Bloomberg reports that the U.S. has the top credit rating at both Moody’s Investors Service and Fitch Ratings.

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At least 15 states that rely heavily on federal spending on programs such as Medicaid, or are home to thousands of federal employees, could lose their triple-A rating because of the Standard Poor s downgrade of the United States. The affected states include Maryland, New...
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Sunday, 07 Aug 2011 09:36 AM
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