Will S&P downgrade of US credit rating affect states?

As financial experts examine the impact of the weekend downgrade of the federal government’s credit rating, ranging from the reaction of foreign markets to the effect on mortgage rates, states also are wondering whether they will be adversely affected as well, John Gramlich says at Stateline.org. And the answer isn’t clear.

Moody’s Investors Service warned last month that a downgrade of the federal credit rating could have a ripple effect in some states, Gramlich reports, but S&P is more likely than Moody’s to view states and other sub-jurisdictions as independent entities. Buyers of tax-free bonds issued by local governments also are unlikely to be troubled by the federal downgrade.

But if Washington imposes deep cuts on essential programs, states might be forced to borrow money to maintain services, potentially increasing borrowing costs.