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.)

Comments (4)
  1. Give me liberty says:

    If only he was as concerned about Minnesota citizens and the impact the state shut down had on them. The left’s idea of leadership is to whine about the impacts to THEIR voters, not all of the citizens of the State/Country. How about coming up with some serious solutions?

    I don’t agree with borrowing against future payments, but what choice do we have if nothing can be cut. Spend within your means or get out.

    1. kman says:

      The Left had a better Idea than the Rights Plan is to Borrow 640 Million and Pay 1.3 Billion back for it do the Math on the Republican Shell game.wait till you see what the Republicans Tax Breaks cost you unless they Produce125,000 Jobs

      1. Steve says:

        Read a book, get a clue, kman.

        Tax breaks do not limit how much you can make, make your own job.

  2. Ordinary Guy says:

    There are things citizens can’t accomplish as individuals, so a government has to do what they decide must be done, and pay for it. Passing the hat doesn’t work. A few things are killing our economy by inches. They are imported goods and services, of which oil is no surprise. Government cannot counteract this by spending cuts.

    “You can’t save your way to prosperity” is the expression, but investing in worthy replacement energy can keep the money in the local economy for a while longer. You know that even if you spend less when you lose a job, eventually you have to get a job. The state and federal government have to work on earning more by doing things that attack these import problems.

    Maybe we don’t have the cheapest or best alternative products yet, but keep working at it! One day we will, and the jobs and revenues too.

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