U.S. debt downgrade comes at tough time for Minn.by Tim Nelson, Minnesota Public Radio
St. Paul, Minn. — Financial experts can't yet determine how Minnesota will be affected by the downgrade of U.S. federal debt, but they say it comes at a tough time for the state.
The federal downgrade comes at the same time that Moody's, changed its outlook on Minnesota to negative, and just weeks after Fitch downgraded the state's credit rating.
As local finance experts digest the impact of the federal credit downgrade, they also await word on whether Standard and Poor's will downgrade local debt.
The downgrade is a reaction to the state's stop-gap budget solution, said Jay Kiedrowski, a former state finance director who served in Gov. Rudy Perpich's administration during the 1970s. He said the S&P downgrade for federal debt will have a followup effect.
"The U.S. federal downgrade will be an additional impact beyond Minnesota being downgraded," Kiedrowski said.
That could mean it will cost yet more for Minnesota to borrow. Last week's budget settlement sends the state soon into the debt market for a $500 million bonding program and tobacco bonds. Those measures are expected to be one-time patches to Minnesota's budget gap.
Tony Barrett, an economics professor at the College of St. Scholastica, doesn't believe consumers will see immediate effects on mortgage rates and other borrowing, but he said larger economic pressures are growing.
"We had really bad GDP numbers," Barrett said. "Then we had the debt crisis.
"And then we had some more bad news out of Europe. There's not a whole lot of good news right now, and I think markets around the world are pricing in a lot of risk."
The most troubling news, Barrett said, are doubts among the Chinese about the quality of U.S. debt and warnings from China about federal finances.