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Local Impact Of S&P Downgrade

Funky Tee (cc) flickr
Funky Tee (cc) flickr

By BJ Austin

Dallas – Local governments and consumers are bracing for the fallout from the U.S. credit rating downgrade by Standard and Poor's. KERA's BJ Austin reports on possible outcomes.

Terry Clower, University of North Texas economist, says a lower credit rating usually means higher interest rates to pay. And he says if the federal government's rates go up, rates for everybody else are likely to go up, too.

Clower: It could result in higher interest rates on things like home equity loans, auto payments, on credit card debt -- raising the cost of borrowing not only for the U.S. government, but for consumers, and businesses and everybody else.

That worries Dallas City Council member Jerry Allen.

Allen: Going forward we just talked about a bond coming up in the end of 2012, so that should be much more expensive for the citizens.

It's the citizens who vote on whether to pay higher taxes to finance the bonds that fund street repair and other public improvements - higher interest rates, higher taxes.

But Bennett Sandlin, director of the Texas Municipal League is not so sure the federal downgrade will hurt cities.

Sandlin: We're not really sure we're going to be directly impacted other than a little bit of indirect interest rate creep if the federal rate goes up. But we're not even sure if that's going to happen yet.

Sandlin says municipal credit ratings are on a very different scale than federal. Dallas has a credit rating one notch below triple A. And, Mayor Mike Rawlings the city is in a good position to weather any downgrade fallout.

Rawlings: It's growing. Job creation is much better than the rest of the country. And I think as somebody looks at their portfolio, they should be looking at a Dallas bond.

How people look at the credit rating "event" -- Wall Street's reaction, and what's happening in European economies -- will be key to how North Texas weathers the financial storm, according to UNT's Terry Clower. He says consumer confidence is critical, and says if people pull back spending that could slow down the North Texas economy, costing more jobs.