Costs related to the lead-tainted water crisis in Flint, Michigan, could pressure the state's finances and derail recent efforts to build budget reserves, Standard & Poor's Ratings Services said on Monday.
"At the state level, political costs for Michigan have been greater than financial costs at this point. However, we could see financial pressures on the state deepen as answers to the financing of infrastructure replacement and social services, coupled with potential legal settlements, unfold," the credit rating agency said in a report.
Financially strapped Flint was under the control of a state-appointed emergency manager when it switched its source for tap water to the nearby Flint River in April 2014 from Detroit's water system to save money.
Flint, about 60 miles (100 km) northwest of Detroit, returned to using Detroit water in October after tests found some children had elevated levels of lead in their blood and lead was found in higher-than-acceptable levels in the water.
S&P said it expected solutions to the crisis, which could include replacing the city's water infrastructure at a cost of as much as $1.5 billion, to unfold over the long term. Health and social service needs also are rising, while lawsuits have been filed blaming the state in part for the crisis, according to S&P.
"Federal financial support thus far has been limited, and we expect that the state and local governments will be responsible for financing the majority of the costs," S&P said.
Republican Governor Rick Snyder's upcoming budget proposal will include extended health and nutritional services for Flint residents, his spokeswoman Anna Heaton said in an email.
"Flint presents financial challenges for the state, certainly, but it is premature to insinuate that the crisis in Flint will have a significant, if any, impact on Michigan’s credit rating," she said.
S&P had revised the outlook on its AA-minus rating for Michigan's general obligation bonds to positive in July based in part on the state's commitment to rebuild budget reserves.
(Reporting by Karen Pierog; Editing by Dan Grebler and Leslie Adler)