Minnesota likely won't tarnish its credit rating if political leaders can't come to a budget agreement and state government shuts down, according to a top credit rating agency.

Moody's Investors Service said Minnesota and Iowa, which is also edging toward shutdown, are not likely to default on their debt or experience significant strain on the economy during a government closure.

"Both Iowa and Minnesota have investment-grade ratings with stable outlooks and neither is likely to experience rating pressure, especially if any shutdown is of short duration," said Moody's Analyst Kimberly Lyons.

Lyons said the final budget agreement – whenever that comes – will have a far bigger impact on the state's credit rating than a government shutdown.

Minnesota state leaders from both parties have tried to protect the state's credit rating during the economic downturn to ensure interest rates on its debt remain low. Minnesota borrows money to pay for road projects, college buildings and other amenities of statewide importance. If the state's credit rating slips, it could tack on millions of dollars to the cost of borrowing money.

DFL Gov. Mark Dayton and Republicans who control the Legislature have until Thursday to balance the budget. At midnight, the budget expires and the money stops flowing, except to critical services.

Minnesota's debt payments are considered an essential function, which means payments will go out on schedule during a shutdown.

Moody's notes that Minnesota is not alone in its budget dilemma ad that "states face enormous budget gaps as the federal stimulus expires and the economic recovery remains tentative."