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Dayton To Seek Assessment Of Default On Minn.

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(credit: Hannah Foslien/Getty Images)

(credit: Hannah Foslien/Getty Images)

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ST. PAUL, Minn. (AP) — Gov. Mark Dayton directed his budget chief Monday to assess how a possible U.S. debt default would affect Minnesota’s finances.

Dayton told The Associated Press that he sought a review of potential trickle-down effects. The first-term Democrat just endured a nearly three-week state government shutdown over a tax-and-spending standoff with legislative Republicans.

Dayton gave no timetable for his Minnesota Management and Budget commissioner to formally report back. But by Monday afternoon, Commissioner Jim Schowalter had already indicated that officials were sizing up possible risks to Medicaid payments and discretionary federal grants. Increased debt costs also were a concern, he said.

Dayton said he hopes “wiser heads will prevail” and federal leaders won’t let an Aug. 2 deadline for raising the nation’s debt limit pass without a deal.

“I still believe they’ll realize it’s too catastrophic to let it happen,” Dayton said.

Officials in some states are worried that a federal default would pinch them because credit agencies could reassess credit ratings for several levels of government. Also, roiled stock markets could drive down state investment portfolios, which include public pension funds.

Last week, Moody’s Investors Service warned that it probably will lower the credit rating on five states if it downgrades the U.S. government’s credit rating. The firm concluded that Maryland, Virginia, South Carolina, Tennessee and New Mexico would be most at risk.

Minnesota saw its sterling credit rating knocked down a notch earlier this month. Fitch Ratings downgraded the state’s bond rating a notch from AAA to AA+; credit ratings determine how costly it is for states to borrow money for publicly financed construction projects.

The talks in Washington echo the dispute that shuttered much of Minnesota’s government for much of this month. Republicans in Congress are holding out for deep spending cuts and no new taxes in exchange for their consent for more federal borrowing; Democratic President Barack Obama is seeking a mixture of spending cuts and extra tax revenue.

Minnesota officials settled their budget dispute by delaying aid to schools and agreeing to borrow against future payments from a 1998 legal settlement with tobacco companies.

On Monday, Dayton stood outside state buildings to welcome public employees back. Most returned to work Thursday when state agencies came back on line.

(© Copyright 2011 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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