‘Game of chicken’: Debt ceiling standoff threatens to ensnare state programs

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A high-stakes debt limit standoff in Washington could have a spillover effect on state spending plans that rely heavily On federal aid to fund various social programs and transportation projects.

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States across the country rely on a steady flow of cash from the federal government to supplement their own tax revenues, but the pipeline of financial aid is at risk amid an impending deadline for Congress to avoid the nation’s first lapse. .

Policy experts say failing to suspend or raise debt limits could hamper spending at the state level, especially in relation to the recently enacted $1.2 trillion infrastructure law.


“The fact that the locations are in better fiscal shape than they were expected to be makes the direct impact a little less imminent, but it will have a bigger impact if the location is thinking about using any of that infrastructure money.” are trying to” or fund earmarked social services, said Kim Ruben, who specializes in state and local government funding in Washington-based urban institute,

“And that’s partly why we’re making this game of chicken feel like a nuclear bomb. We really need to raise the debt limit because of what it’s going to do to the economy broadly — [a default] There could be a negative impact on state and local governments, but it could also upset all kinds of other financial markets and banking.”

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about the federal government $750 billion In annual aid to states, funding ranges from Medicaid, a program that covers nearly 75 million Americans, to food stamps used by nearly 42 million households. It also includes funding for schools, roads, transportation and various housing programs for low-income families.

many states that most trusted On federal funding — more than 40 percent — are Republican-led states such as Alaska, Louisiana, Mississippi and Montana, largely due to lower tax rates. Some Democratic-led states also receive a significant portion of federal dollars: About 36 percent of New York’s budget comes from federal aid, while California sees about 30 percent of its budget backed by Washington.

“Every state depends on federal funding for a very good portion of its budget,” said state policy expert Rebecca Thies of the Pew Charitable Trust. “Since the Great Recession, federal funding has Remained as it is Essentially a third of the state budget. So, if you think about where the states get their money from — it’s taxes, it’s fees, local funds, service charges — but then the federal government has that important role.”

Overall, the states are in a strong financial position according to a report good Last week from the National Association of State Budget Officials. The report said spending on health care, education and transportation increased by more than 16 percent this year compared to 2020, and federal funding for states increased sharply, a nearly 36 percent increase.

Thies and other experts cautioned that it is difficult to predict how things will play out because the country has never defaulted on its debt, but cuts to federally-funded social safety net programs on which millions of people are able to meet their needs. To rely on, is a major concern.

“We don’t have experience of federal default,” said Jared Walzak, vice president of state projects at the Tax Foundation. “We don’t want a situation where there is uncertainty about whether federal dollars will flow.”

Senate Republicans have indicated in recent months that Democrats will need to go it alone to raise the debt limit, at a time when the party is already trying to get President Joe Biden’s $1.75 trillion Build Back Better Bill through Congress. is fighting for.

“We are focused on accomplishing this in a bipartisan way,” Senate Majority Leader Chuck Schumer, D.N.Y., said this month, referring to debt limit talks with his GOP counterpart, Senate Minority Leader Mitch McConnell.

The Kentucky Republican said in October that his party would not work with Democrats to raise the debt limit in December, but he softened his tone recently this month, saying, “We’ll figure out how to avoid default.” . We always do.”

Congress drew closer to a possible default in October, before lawmakers, including some Senate Republicans, raised the debt limit by $480 billion to allow the government to continue paying its bills.

Treasury Secretary Janet Yellen warned lawmakers earlier this month that the country would be unable to pay its bills immediately after December 15 and pressured lawmakers to act quickly to avoid default.

“There are scenarios in which the Treasury would be left with insufficient remaining resources to allow the US government to continue operating beyond December 15,” Yellen said.

And while state policy experts are optimistic that Congress will find a solution in the coming weeks, a

“The federal default has never happened and everyone expects and expects that it won’t happen now,” Walzak said. “States’ programs will not stop if there is some amount of delay in getting federal aid, but obviously they need it to be able to fund these programs.”

Credit: www.nbcnews.com /

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