VA And MD Could Get Downgraded Over Entitlment Cuts

Although it lowered the credit rating of the federal government, Standard & Poor's says it will not drop the ratings of Virginia and Maryland now, but the rating agency says that could change.

Virginia and Maryland officials can breathe easy for now. S&P says it isn't going to tie state and local governments to the fate of the federal government, which no longer retains its sterling triple-A bond rating. But John Sugden, a director at the credit rating agency, says officials are now watching Congress.

"To the extent that the federal spending cuts are so large that they affect the state's revenues, and to the extent that the states don't adjust their budgets to offset those reductions, there could be some pressure on the rating," said Sugden.

As a part of the deal raising the federal debt ceiling, lawmakers set up a joint congressional committee tasked with finding at least $1.5 trillion dollars in budget cuts. Sugden says the credit rating of states, such as Virginia and Maryland, will be reexamined based on the severity of those cuts. He says they're looking for a number of things.

"One, is direct reductions due to federal spending cuts, and that could be Medicaid it could be other sorts of spending that goes directly from the federal to the state," said Sugden.

Another factor could be general economic weakness due to a slow recovery.

The joint congressional committee has yet to be set up, but its findings are due by Thanksgiving.