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Will States Face a Downgrade Too?

This post was originally published on the Public Notice: Bankrupting America Blog.

Standard & Poor’s recent downgrade of the United States’ credit rating leaves 13 states with higher ratings than the federal government.

As reported by USA Today, S&P has yet to announce plans to downgrade the ratings of states and municipalities, but the effect may be felt anyway on numerous municipal bonds backed by federal repayment.

While S&P is waiting to warn states, The Boston Globe notes that fellow credit ratings agency Moody’s earlier warning has been repeated to five states and 161 cities and towns with AAA ratings. In the case of Massachusetts, even “dozens of affluent communities” could not evade a “negative outlook.”

Even as a shroud of uncertainty wraps around the country, the 19,000-member National League of Cities issued a statement affirming S&P’s decision to leave municipal ratings untouched. The statement argues that although “federal policy responses have been inadequate” the “overwhelming majority” of cities and states balance their budgets and pay off their debt.

Still, following the lead of federal overspending, states and municipalities added $58 billion more in debt this year alone, leaving them with a current combined debt of $2.4 trillion.

Washington must set the tone for responsible spending and eliminate wasteful and inefficient programs that have contributed to this debt crisis. Once a reasonable plan is in place, some semblance of economic certainty can return and the recovery can begin to take hold.

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