NEW YORK — American state and city governments already struggling to balance their books now must brace for the prospect of increased borrowing costs as Standard & Poor’s plans to reevaluate their credit ratings.
Fresh off its unprecedented downgrade of the federal government’s creditworthiness, the rating agency said that it will evaluate local governments — many of which are still struggling to recover from the Great Recession — after federal lawmakers announce specific spending cuts later this year. Lower ratings could make it more expensive for governments to borrow money in a market where investors use these grades to judge credit quality. With many localities already in the process of enacting difficult budget cuts, downgrades could heap strain on American communities.
“A downgrade means it puts the governor, the legislature and every elected local official in a tough position. Do you raise property taxes? Do you raise water and sewer rates?” said Frank Shafroth, director of the Center for State and Local Government Leadership at George Mason University. “Do you invest in the future, or do you stultify? It’s not a good choice.”
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