There are local consequences if the federal government defaults on its debt. A major credit rating agency is warning that South Carolina and four other states risk losing their AAA rating if the federal government cannot find a long-term budget solution.
The AAA rating is considered the best for debt, as any state holding it is viewed as a low credit risk.
However, as a high-poverty state, South Carolina depends heavily on federal revenue for its Medicaid program. That means, if the federal government defaults on some of its obligations such as Medicaid, South Carolina would have no way to pay much of the benefits.
A downgrade is not imminent, and Moody’s is only calling it a small, but rising risk. But, the possibility is worrying lawmakers.
“That’s absolutely unacceptable,” Governor Nikki Haley said in a statement Wednesday, “It’s time for (President Obama) to work with Congress to pass real, long-term spending cuts, and let our economy get moving.”
State Treasurer Curtis Loftis has said previously the state’s AAA rating is vital to keeping interest rates low, saving taxpayers money in the long run. “I urge the Congress to conclude its current debate involving the debt ceiling and federal budget,” Loftis said in a statement Tuesday. “A permanent solution must be found to balance the budget and eliminate Washington’s habitually spending beyond its means.”
Moody’s Investors Service warned last week it was placing the federal government’s AAA rating under review. It said the possibility of a default, and the lack of a long-term solution for the national debt are concerning.
A downgrade would result in higher interest rates, impacting mortgages and car loans, and would increase future debt even more.
Maryland, New Mexico, Tennessee, and Virginia are also at risk. Moody’s said states that depend on federal revenue, federal workers, or government contracts have the most to lose should Washington default on its debt.