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Fri February 8, 2013
What does Medicaid have to do with Missouri's credit rating?
Governor Jay Nixon loves to brag about Missouri’s “spotless Triple-A” credit rating and did so again in his State of the State speech. But that rating might be in danger now, according to a statement released by credit rating agency Moody’s on Tuesday.
Municipal credit ratings are one of the ways the market judges a government’s risk of default. A high bond rating like AAA means that the state can borrow to build projects and programs when revenue isn’t immediately available. If rating agencies lower the state’s credit rating, the market may trust the state less and demand higher interest rates.
In the statement, Moody’s pointed out that it wasn’t so much the health of the state they’re worried about—it’s the federal government. While Moody’s hasn’t officially downgraded the federal government’s credit rating the way competitor Standard and Poor’s has, they worry about states' exposure to “potential federal cuts.” As a result they’ve changed their outlook on Missouri’s rating from “stable” to “negative.” That’s not the same as a downgraded rating, but it’s not good.
“They said the Triple-A rating holds,” said MU Professor of Economics Joseph Haslag. “But if they look forward, they’re seeing things that raise concerns to them about the future path.”
It’s likely that thing of concern is Nixon’s attempt to expand the state’s Medicaid program.
Haslag says that of the $24 billion in the state budget, Missouri only takes in about $7.5 billion in local revenue. The rest of that is made up out of federal monies of some kind. Medicaid expansion would bring in even more federal money.
“For a state that’s already as exposed or reliant as we are on federal monies to meet our budget obligations, that might concern Moody’s.” said Haslag.
Moody’s also changed their outlook on 8 local governments including Denver, Minneapolis and Indianapois. Missouri was the the only state government revised in the statement.