Tea Party's Take on Debt-Ceiling Debate

Jay Powell of the Bipartisan Policy Center discusses the continuing negotiations on the debt ceiling.

Moody's Warns Could Cut 5 States Tied to U.S. Credit

Politics Reuters

Texas and nine other states could end up with a higher credit rating than the United States.

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That is what Moody's Investors Service Tuesday said could happen if lawmakers in Washington fumble debt talks so badly the rating agency is forced to cut the U.S. rating to Aa1 from its current triple-A level.

Ten states, including Texas, Missouri and Iowa, are not heavily dependent on federal aid and therefore will keep their triple-A ratings even if the United States is downgraded a notch, the rating agency said.

However, the remaining five states rated Aaa by Moody's -- Maryland, New Mexico, South Carolina, Tennessee and Virginia -- are likely to lose their top rating as their ties to the U.S. government in terms of high federal employment levels or Medicaid exposure put them in jeopardy should the United States' rating be cut to Aa1 or lower, according to the rating agency.

The action followed Moody's placement on July 13 of the United States' Aaa rating on review for a possible downgrade. At that time, Moody's said it would be looking at all 15 Aaa-rated states, along with a slew of top-rated, cities, counties, school districts and universities to determine their vulnerability to deterioration in the United States' credit.

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Neither Standard & Poor's Ratings Services or Fitch Ratings have included states or other issuers in the U.S. municipal bond market that carry top ratings in warnings they put out about the United States.

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But all three major rating agencies have linked muni debt directly tied to the federal government, such as pre-refunded bonds and certain housing bonds, to possible action on the United States' rating.

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