Posted on July - 26 - 2011
Moody’s says Tenn. among states that would be hit hardest by default
According to a USA Today report, Moody’s Investor Service has identified five states — Maryland, Virginia, New Mexico, South Carolina and Tennessee — whose credit ratings likely would be downgraded if U.S. Treasuries are given a lower rating. Like the U.S., these states enjoy triple-A ratings, and their financial health is more closely linked to the nation’s.
“As the deadline to Aug. 2 comes closer, people are really, really worried,” says Scott Pattison, executive director of the National Association of State Budget Officers.
A failure by Congress to raise the $14.3 trillion federal debt limit would lower the nation’s credit rating and raise borrowing costs for states as well as 7,000 cities, counties, universities and non-profits. That’s partly because many interest rates — for everything from municipal bonds to mortgages — are benchmarked to U.S. Treasuries.
Even more worrisome is that states receive about 35% of their revenue from the federal government, including funds to build roads and schools and to help pay Medicaid and unemployment insurance, according to NASBO. To avoid defaulting on its debt and further harming its credit rating, the U.S. government likely would pay its bondholders but curtail other expenditures, such as disbursements to states, Standard & Poor’s says.
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