If you think the increasingly contentious debate over the federal debt ceiling is strictly an inside-the-Beltway problem, think again. Granted, Congress is the source of solutions, but if the United States plummets into default, the fallout will be devastating for the states.
Here in Washington, the severity of that threat was described in a letter this week from state Treasurer Jim McIntire to the state’s congressional delegation. McIntire — one of the smartest and most trusted of our statewide elected officials — told the lawmakers that failure to resolve the debt-ceiling dilemma “will likely crush a fragile economy, irreparably harm struggling businesses and families, damage responsible state governments and undermine emerging stability among our community banks. This is a risk we cannot afford to take.”
And that’s why Washington’s two senators and nine representatives must set aside partisan differences and find a way to keep American from falling into default.
McIntire credited Washington’s Legislature for taking a “hard-nosed and practical approach” to prepare for this day. Borrowing costs have been kept down for the state, but federal inaction on the debt ceiling could erase all that, and “it will not be possible to finance major construction projects or execute refundings to save taxpayer dollars … .”
The state’s banks are at high risk; 18 banks that once served as depositaries for state and local funds have failed, which McIntire wrote “led to “severely reducing the availability of banking services for local governments.”
Another state official provides a slightly more positive — but still deeply concerned — perspective. State Budget Director Marty Brown was interviewed this week by Jason Mercier of the Washington Policy Center. Brown told Mercier that, if the debt debate continues, our state for 6-8 weeks “would be in position to ride out the storm due to the state Treasurer’s cash management strategy of moving away from investing in short-term Treasurys and into cash holdings.” Also: “While the state could weather reductions in most federal matching funds for the short term, it could not withstand prolonged absence of Medicaid matching funds.”
And that brings up another frightening uncertainty in this whole mess. State officials across the country don’t know if the federal Treasury would prioritize debt payments over other obligations (including to the states). Brown said his chief concern “about a short-term failure to resolve the debt debate is the impact on the state economy and future revenue forecasts.” Indeed, Washington is poised on the edge of recovery, but inaction in Congress could push our state back into a financial abyss. On Thursday, Moody’s Investors Service said the University of Washington could lose its “AAA” rating if a default occurs. Local governments and school districts also face credit-rating downgrades.
At least we’re in better shape than California, which is borrowing $5 billion in bonds. Chris McGann, a spokesman for McIntire’s office, told The Olympian newspaper that Washington is “in a pretty good position with liquidity, so we don’t have the problem California is having and we don’t borrow money for ongoing expenses. In the short term, we don’t have a big problem, although we are monitoring the situation.”
Many heavily publicized Congressional issues affect limited constituencies. This looming financial meltdown, though, threatens every American and every business. It also holds huge implications politically, for the 2012 elections as well as for the future of a Republican Party that appears deeply conflicted over the debt-ceiling struggle.
Most Americans believe Congress — even this combative one — is up to the task. But most Americans also believe their hopes are withering rapidly.