South Carolina bond rating could fall

Moody's Investors Service warned Tuesday that it probably will lower the credit rating on five states, including South Carolina, if it downgrades the U.S. government's credit rating.

The credit rating agency said it has placed on review for possible downgrade the triple-A bond ratings of South Carolina, Maryland, New Mexico, Tennessee and Virginia.

A triple-A rating is the highest for debt and tells investors that an institutional borrower presents a minimal credit risk.

The Palmetto State is one of 15 with the triple-A rating. The remaining 35 states and the District of Columbia have lower ratings.

Last week Moody's placed the U.S. government's triple-A credit rating under review for a possible downgrade as Congress and the White House wrestle over raising the nation's $14.3 trillion borrowing limit.

Moody's said there is a small but rising risk that the government will default on its debt.

The government reached its borrowing limit in May. The Treasury Department has said that the government will default on its debt if the limit is not raised by Aug. 2.

A downgrade would raise interest rates on U.S. treasury bonds, increasing the interest that taxpayers pay those who buy the bonds. It also would push up rates for mortgages, car loans and other debts, which are linked to Treasury rates.

If South Carolina's credit is downgraded, the state would have to spend more cash to borrow money for new roads, schools or bridges, because interest rates would be higher.

S.C. Treasurer Curtis Loftis said that one of the factors that makes the state vulnerable is its reliance on federal funds to provide Medicaid.

The state wouldn't be able to cover the Medicaid bills without the federal government chipping in, Loftis said. Then again, the state would not have all the federal requirements that keep Medicaid costs high if it didn't accept the federal contribution.

Rep. B.R. Skelton, a Six Mile Republican and economics professor emeritus at Clemson University, said the news is alarming. Besides making it more expensive to take out future government bonds to finance big capital projects, Skelton said the state also would take a hit if it tried to sell bonds on the market. A lower credit rating is not expected to impact the amount of money the state will need to pay back bonds already borrowed, he said.