Moody's warning on U.S. rating extends to some munis

Sept 11 (Reuters) - If Moody's Investors Service strips the United States of its triple-A credit rating, a possibility the rating agency warned of on Tuesday, the ratings of three states and dozens of local governments could also be affected.

Moody's put federal officials on notice that unless they agree on a plan to tame the nation's debt load, the U.S.'s rating could be downgraded a notch to Aa1 next year.

A downgrade could negatively affect the Aaa ratings of states, cities, counties, school districts and other debt issuers that Moody's has identified as having substantial links to the U.S. government in terms of federal employment and procurement, and Medicaid, the state and federal funded healthcare program for the poor.

"If the U.S. rating is downgraded then we have to answer the question, 'which states and local governments have enough links to the U.S. government so that their ratings should not be higher,'" said Naomi Richman, a Moody's analyst.

A previous downgrade warning for the nation in 2011 triggered a review of a slew of municipal credits by Moody's, which in December finalized negative outlooks on the Aaa ratings for Maryland, New Mexico and Virginia, along with 36 local governments. The rating agency at that time noted those issuers would not likely retain their top ratings should the United States be downgraded.

But Moody's analysts said on Tuesday that downgrades would not be automatic and would instead occur on a case-by-case basis.

Most of the local governments are in Maryland and Virginia, which have large concentrations of federal workers and companies that do business with the U.S. government. Others are in Texas, Colorado, Alabama, Missouri, Indiana, Pennsylvania, Oklahoma and New Mexico.

Bob Kurtter, a Moody's analyst, said some muni ratings may be under pressure even if the United States retains its triple-A rating and slashes its budget. For example, deep federal defense spending cuts could negatively affect Maryland and Virginia, he said. On the other hand, federal officials could decide instead to drastically reduce spending on social programs, which would affect other muni credits.

The impact of federal spending cuts could also spread to muni credits that are rated below Aaa, Richman said.

Standard & Poor's Ratings Services' downgrade of the United States to AA-plus with a negative outlook from AAA in August 2011 did not result in any negative outlooks or rating cuts for top-rated states and local governments, according to Steve Murphy, an S&P managing director.

However, he said the rating agency will be examining how future federal spending reductions will affect municipal debt issuers once details of those cuts are known.