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Minnesota to gauge impact of possible federal default

A potential federal default  would affect Minnesota’s finances, but apparently no one is sure what the impact would be.

So Gov. Mark Dayton has asked his Minnesota Management and Budget department to see exactly what the effect on the state will be if leaders and Washington don’t reach an agreement to raise the debt ceiling.

Fitch Ratings already downgraded the state’s bond rating from AAA to AA+ because of the 20-day shutdown.

Last week, Michael Linden, director of tax and budget policy at the liberal Center for American Progress, told MPR that states receive lots of money from the federal government, “and if the government is not able to borrow, then all that money is going to be first on the chopping block.”

He estimated Minnesota could lose almost $900 million in federal money in August and September alone, if the debt ceiling isn’t increased.

Even if it is increased, a long-term budget deal likely will shift some costs for programs like Medicaid from the federal government to the states, he said.

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