Default Could Spell Chaos For States, Too
July 29, 2011 by UPI - United Press International, Inc.
WASHINGTON, July 29 (UPI) — As the U.S. heads for possible default within days, the effects on states would depend on which bills the Treasury pays, an analysis shows.
States rely on federal aid for one-third of their budgets — mostly funding for Medicaid, welfare, education and transportation, Stateline.org reports.
If the federal government runs out of borrowing authority next week, it could stop aid for these programs, plunging state budgets into crisis, the Bipartisan Policy Center predicts.
If military and federal employee pay and veterans benefits are halted instead, the disruption would be equally drastic but distributed more widely across the economy.
States also risk losing their own access to credit markets.
Moody’s has warned Maryland, New Mexico, South Carolina, Tennessee and Virginia that if the federal government loses its AAA bond rating, they likely will, too.
“About all we can do is wait and worry,” said Warren Deschenaux, head of Maryland’s Department of Legislative Services.