Credit downgrade will affect county residents, financial expert says

Published 4:16 pm Monday, August 15, 2011

By BRAD GASKINS / Staff Writer

The United States’ recent credit downgrade will affect Shelby County residents, a financial professional said.

Dr. Wayne C. Curtis is a member of the board of directors of First United Security Bank, and the former dean and professor of banking and finance at Troy University’s Sorrell College of Business.

Curtis said residents could expect short- and long-term effects of the credit downgrade.

In the short term, volatility in the financial markets will affect investments, including retirement accounts.

“This is caused not only by the debt downgrade in this country, but also is a product of the sovereign debt problem of European nations,” Curtis said.

He said unemployment will remain “relatively high” as uncertainty has a negative impact on consumer confidence and consumer spending. As a result, he said, unemployment will remain relatively high in the short term.

In the long term, as Congress struggles to reduce the budget deficit and national debt, Curtis said residents will be affected through a combination of spending cuts and tax increases.

“This will have a direct impact on Social Security and Medicare recipients,” Curtis said. “ Medicare, in particular, will be targeted because of the costs associated with administering the program. Cuts, in all likelihood, will occur in reimbursements for medical care.  This will cause many physicians to refuse to see patients who are on Medicare. This is already occurring, but expect the pace to accelerate.”

Curtis said the retirement age would increase in an effort to “restore solvency to the system.”

“Current recipients in higher income levels could see benefits reduced if ‘means testing’ is used, as some are advocating.”

Personal income taxes will rise, especially for those earning $250,000 or more, Curtis said.

“This will have an adverse impact on many small business owners in the area as well as individuals in higher-income brackets.”

What about Shelby County government? What affect, if any, will the downgrade have?

“There’s no direct impact on us as far as our county obligations go,” County Finance Director Butch Burbage said. “We’re not dependent on the U.S. credit rating or anything like that. We have our own.”

Moody’s recently reaffirmed Shelby County’s AAA credit rating, he said.

“We’re not on any watch list or anything like that,” he added.

He said the county could see indirect affects of the credit downgrade.

“People don’t feel good about the economy,” he said. “They’ll spend less. They’re uncertain about the future. This obviously means less money available to the county.”

The county could be indirectly affected if money is cut from programs from which the county receives grants.

The county has received more than $1 million a year in grant money in the last couple years, he said, quickly noting that the county does not use grant money for standing operating expenses.

“We’re not dependant on paying salaries or anything like that with any kind of grants that come in,” he said. “These grants are used for specific projects.”

The county has, for example, used grant money for projects at the Shelby County Airport. Previous grant money has been used to build hangars, remodel the waiting area and extend the runway.

“We’re used to getting $150,000 to $200,000 a year in an FFA grant,” Burbage said. “That may not be available in the coming year. I don’t know.”

He said grant money is used to fund the Shelby County Drug Task Force. The money, he said, comes to the county from Washington through an ADECA grant in Montgomery.

“Let’s say for some odd reason they go on a tearing spree up there in Congress and they start slashing the budgets for some of these agencies that provide grants down through state agencies, then we might not be able to get those type of grants anymore,” Burbage said.