A default on the federal government’s debts could cause general economic turmoil, with the impact spreading to the nation’s state capitals, according to a just-published analysis by the National Conference of State Legislatures.
“Federal reimbursements to states would cease,” predicts Brian Wanko, legislative director for the NCSL’s State-Federal Affairs Program, of a Washington default.
In addition, “matching money for partnership programs would no longer be available, and the federal government would suspend funding for state-led projects and programs,” continues Wanko.
Overall state budgets would be severely impacted, too, with the possibility of the U.S. economy even entering a depression.
Interestingly, the last time a state government defaulted on its debts was during the Great Depression in 1933 when Arkansas fell short on its highway bond funding. But the model for what might happen nationally is nonexistent, simply because a U.S federal default has never happened.
Wanko additionally notes that should a federal default occur, “Social Security and federal pension payments might cease, federal agencies would furlough employees.” Such vital agencies as the Federal Aviation Administration and U.S. Customs could only continue to operate with an emergency stopgap measure by approved by President Biden and Congress.
Earlier this month the National Conference of State Legislatures, along with the National League of Cities, and National Association of Counties, among several other groups, sent a letter to Congress asking it to “increase or suspend the debt limit as soon as possible.”
The letter additionally urged the President and Congress to “consider serious long-term reforms that will reduce the national debt and put the country on more sustainable fiscal footing.”
It is thought that the federal government could run out of funds by as early as July if a solution to the looming debt limit is not reached.
By Garry Boulard
