Any NY state government shutdown may prove mild: Moody's

NEW YORK (Reuters) - Any shutdown of New York state government prompted by its budget impasse might have only a mild impact on the state's rating and those of counties, cities and towns, Moody's Investors Service said on Thursday.

So far, the state has been able to keep its workers, from jailers to lifeguards, on the job as the legislature has enacted Governor David Paterson's emergency spending bills.

Without those weekly measures, the state would have to shut many services residents need because the Democratic governor and the Democratic-led legislature have failed to enact a $135 billion budget almost three months after the April 1 deadline.

"We believe that a shutdown is unlikely, but if one were to occur, it would probably be for only a few days, and have a minimal impact on services," Moody's said in a report.

The state safeguarded bondholders by approving debt service payments for the full fiscal year. But the Senate, which Democrats only control with a two-seat majority, for the past few weeks has resisted the emergency spending bills because Paterson included full-year cuts in healthcare and education.

Pennsylvania, Minnesota and New Jersey all weathered brief shutdowns in the past few years without harming their credit ratings, Moody's said.

But Puerto Rico's credit was downgraded in 2006 because its shutdown was caused by "massive financial difficulties," Moody's said.

In New York, "A lengthy government shutdown that caused a long disruption in services and payments to local governments could result in negative credit pressure on the state, currently rated Aa2 with a stable outlook," Moody's said.

New York's universities, the Metropolitan Transportation Authority and New York City could withstand a brief shutdown though schools and counties might have to burn through reserves or increase borrowing, the report said.

Paterson has told the legislature it must approve a budget by June 28 or he will close the rest of the $9.2 billion deficit with cuts in next week's emergency spending bill.

"This deficit reduction is going to be 85 percent cuts which is going to be devastating and difficult," he told WOR radio. Though lawmakers spurned his tax on sugary soda, the New York City Health Department estimated a one-cent levy per ounce could save 145,000 adults from obesity in the next decade.

But with the legislature also resisting Paterson's plan to let groceries sell wine, another way of raising revenue, the debate has focused on whether to begin charging the 4 percent state sales tax on clothing that costs less than $100.

This could raise $700 million if the exemption were ended in October, after the back-to-school shopping season,

Spokesmen for Assembly Speaker Sheldon Silver and the Senate's Democratic Majority Conference Leader John Sampson were not immediately available.

Like many states, New York relied on Congress approving extra Medicaid dollars and Paterson said that with that aid now in doubt, next week's emergency bill will have to include a plan for dealing with $1 billion loss.

(Editing by Diane Craft)