States with high numbers of federal workers or contractors, large military presences or generous Medicaid programs for the needy are among the most vulnerable from Standard & Poor's recent downgrade of U.S. government debt.
Last week's action by S&P is expected to accelerate congressional action to make deep spending cuts, which could affect those states the most and put their long-term finances on shaky ground. In a debt rating domino effect, states such as Virginia, Maryland, California, New Mexico or Illinois could be at risk of having their own ratings downgraded, even as great uncertainty persists about the long-term consequences.
"The more a state appears to be tied to federal funds or federal presence, probably the more concerned the rating agencies will be with its future because it's so linked to federal money," said Michael Bird, federal affairs counsel for the National Conference of State Legislatures.
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