US budget deal could affect municipal ratings: S&P

CHICAGO: The US Budget Control Act of 2011 could affect Standard & Poor's view of municipal credit quality, the rating agency said on Thursday.

"In our opinion, the longer-term deficit reduction framework adopted as part of the BCA could undermine the already fragile economic recovery and complicate aspects of state and local government fiscal management," S&P analyst Gabriel Petek said in a statement.

He added that either outcome could potentially weaken the rating agency's view of certain issuers in the $3.7 trillion US municipal bond market, although the federal act will likely have an uneven impact on state and local governments.

S&P, which cut the United States' perfect triple-A rating to AA-plus with a negative outlook on Aug. 5, said its initial analysis of plans to reduce the nation's deficit by as much as $2.4 trillion by 2021 indicates that material reductions in federal funding to states, cities and other local governments are unlikely to take place before 2013.

Copyright Reuters, 2011