OLYMPIA — The stalemate in Congress over how to raise the national debt ceiling might have an immediate local impact in Washington state, as a key ratings agency warned Thursday that the University of Washington and the city of Seattle face possible credit rating downgrades.
Moody’s Investors Service said the UW could lose its top-notch “Aaa” rating if the federal government’s standing also falls. The warning reflects UW’s large share of revenues from federal research grants, along with Medicare and Medicaid reimbursements.
“Our review in the event of a U.S. government downgrade would focus on UW’s ability to maintain balance sheet reserves and operating cash flow while reducing expenses or increasing revenues in response to potentially significant federal funding cuts,” said John Nelson, managing director for health care, higher education and not-for-profits at Moody’s.
The ratings agency also listed 162 local governments for possible downgrade, including Seattle, Bellevue and King County. School districts in King County were also placed under review.
Federal officials say Congress needs to soon find an agreement on how to raise the debt ceiling or the government will not be able to pay all its bills. President Barack Obama’s administration has not said which bills would be paid first.
State Treasurer Jim McIntire said Washington could comfortably survive several weeks without federal government payments but would likely face higher borrowing costs in the future if a national default destabilizes the economy.
Unlike California, which has borrowed billions from private investors in case a federal default triggers a cash shortage, McIntire said Washington typically holds a balance of about $3 billion. Even if the federal government ceased all payments to the state, Washington could survive about six to eight weeks before it would need to sell off some short-term investments to free up additional cash.
“We’ll be able to handle any kind of short-term cash-flow interruption,” McIntire said.
McIntire said the larger concern is that a federal default would disrupt the economy and world markets. He said the state was planning to refinance about $400 million of high-interest bonds in the coming months to save about $20 million but that plan would be jeopardized by a federal default.
State finance leaders said a default would also drive up borrowing costs in the future and could result in a downgrade to the state’s credit rating. McIntire has sent a letter to Congress, laying out the consequences if no agreement is reached.
“It could very well tip a very fragile economy back into a recession and seriously affect our revenues,” McIntire said. “That is by far the biggest concern. It’s a risk we can ill-afford to take.”
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