States and local governments could face repercussions following S&P's downgrade of U.S. debt
State and local governments could face higher borrowing costs and tighter budgets following the first-ever downgrade of U.S. debt, which could result in more job cuts and reductions in social services, experts say.
Credit rating agency Standard and Poor's revised ratings for numerous municipal bond issuers, including
school-construction bonds in
"It's really about how much funding [state and local governments] get from the federal government," says
Higher borrowing costs could imperil some state and local governments already facing fragile budgets. Add to that the potential for reduced federal funding on the heels of the debt-ceiling deal forged in August that calls for more than
"There's a combination of the worry that [states and local governments] will cut back on spending further, which is obviously not good for employment or that they'll have to issue more debt to try to make up the shortfalls," says
In 2010, states and local governments received more than
Despite the bleak economic environment of the past several years, states and local governments have proved relatively resilient, says
While Kozlik doesn't anticipate sweeping downgrades of municipal issuers in the coming weeks, he says a lot is still up in the air concerning
Many questions remain about the future of the global financial system, now that U.S. debt no longer commands the coveted AAA rating. While it seems the immediate fallout may be a temporary market selloff,
"When we look out a couple of years, the downgrade will have had an impact by ultimately raising borrowing costs," McBride says. "The additional money going toward interest payments [will be] money not being spent elsewhere in the economy."
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