States Prepare Timelines for Missed Debt Deadline

By: - July 28, 2011 12:00 am

While Congress debates whether to raise the federal debt ceiling, states are preparing timelines to see how long they can last in the event that no agreement is reached.

New Mexico has enough money to pay its bills for about 22 days in case the impasse in Washington, D.C., continues, Finance and Administration Secretary Rick May tells The New Mexico Independent . New Mexico is one of five states that have been warned by Moody’s Investors Service that their bond ratings could be threatened if the federal government’s own rating is downgraded. (The others are Maryland, South Carolina, Tennessee and Virginia.)

A spokesman for Pennsylvania Governor Tom Corbett also says the state has enough money to last several weeks if the federal debt ceiling is not raised by the August 2 deadline outlined by the U.S. Treasury Department, The Associated Press reports . Pennsylvania is in the fortunate position of having cash on hand because of improving tax collections and unspent funds, the AP notes, though construction and other capital projects could be put on hold if no federal deal is reached.

Other states are preparing backup plans that could be triggered relatively quickly. South Carolina will consider furloughing 7,300 state workers whose paychecks depend on federal funding, The (Columbia) State reports. Another option would be for the state to pick up the federal government’s tab for those workers and seek reimbursement later.

If the federal government’s credit rating is downgraded after the August 2 deadline comes and goes, Moody’s would likely wait seven to 10 days until deciding whether some states’ ratings also should be downgraded, a spokesman for the ratings agency tells The State . A credit rating downgrade could increase borrowing costs for the states affected, adding further strain to state finances.

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