White House warns states of potentially dire effects if government defaults
By Betsy Klein and Kevin Liptak, CNN
The White House is warning states that a default caused by failing to raise the federal debt limit could result in drastic cutbacks to disaster relief, Medicaid, school funding and other programs.
“If the US defaults and can no longer pay its obligations, billions of dollars in state aid and state-run but federal funded programs could be halted,” the White House warns in a fact sheet for local and state officials.
President Joe Biden has demanded that Republicans join Democrats in raising the debt ceiling, but so far, GOP lawmakers have resisted. The memo comes as Democratic leaders are seriously considering adding a debt limit increase to the stopgap funding bill. A final decision on whether to make that move must come by Monday, when the House Rules Committee is slated to take up the short-term continuing resolution, or CR, to keep the government open past September 30.
If Democrats add the debt limit hike to the CR, it will set up a showdown vote days before the shutdown deadline, since Senate Republicans are vowing to block it.
The US Treasury has said extraordinary measures to avoid default will run out by October.
The memo outlines several key programs that would be halted if Congress fails to increase the debt limit, including disaster relief efforts, Medicaid and the Children’s Health Insurance Program, infrastructure funding, education, public health and child nutrition.
The memo also warned that “hitting the debt ceiling could cause a recession,” suggesting, “Economic growth would falter, unemployment would rise, and the labor market could lose millions of jobs.”
“If the U.S. defaults on its debt — cities and states could experience a double-whammy: falling revenues and no federal aid as long as Congress refuses to raise or suspend the debt limit. This means critical state services will be at risk for budget cuts, from education to healthcare to pensions,” the White House said.
It also warns that capital market volatility “could affect state assets,” which could impact state pension payout obligations.
The White House expressed confidence the matter would get resolved, but declined to say how.
“We have seen this done in a bipartisan way consistently. And the best way to do this is without a lot of drama, without a lot of self-inflicted harm to the economy and to our country. And that’s what we’re going to do, you know, there’s a lot of posturing on this issue, but we’re confident at the end of the day we’ll get this done,” National Economic Council director Brian Deese said Friday on MSNBC.
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CNN’s Manu Raju contributed to this report.
