Norton Braces Residents for Consequences of Failure to Raise Debt Ceiling

WI Staff Report | 8/3/2011, 10:36 a.m.
As Congresswoman Eleanor Holmes Norton (D-DC) prepared to work with her colleagues through the weekend...
Eleanor Holmes Norton / Courtesy photo

As Congresswoman Eleanor Holmes Norton (D-DC) prepared to work with her colleagues through the weekend to reach an agreement to raise the debt ceiling, she warned that the District, like the rest of the national capital region, may be particularly harmed if the debt ceiling is not raised by August 2.

Although unprecedented, failure to raise the debt ceiling would leave the federal government without enough cash to meet all of its obligations, forcing it to prioritize payments, ranging from interest payments on the federal debt to Social Security benefits to electricity bills. The national capital region, including the District, is particularly vulnerable to the consequences of not raising the debt ceiling because the region has a large number of federal employees and federal contractors, whose taxes fill the coffers of local and state governments.

Depending on how the president prioritizes payments, federal employees and contractors may not be paid for work performed and federal employees may be furloughed.

Unlike Virginia and Maryland, the District has not been placed on rating agency Moody's triple-A "watch list" because the city does not have a triple-A credit rating. However, as D.C. Chief Financial Officer Natwar M. Gandhi recently warned, the District government could face a bond ratings downgrade because of its reliance on the federal presence for revenue and because of its lack of liquidity, forcing the District government to pay higher interest rates on its bonds.

In the worst-case scenario, if the ceiling is not raised and credit markets freeze, the District could face a cash squeeze and default on its own obligations, thereby triggering the return of the federal financial control board.

"Not only are House Republicans holding hostage this country's economy and standing in the world to placate the tea party," Norton said, "they are jeopardizing the District's right to govern its own finances."

In April, Congress refused to free the District government from the fiscal year 2011 federal budget fight, which brought the local government close to a shut down along with the federal government because Congress had not approved the local budget passed by the District months earlier.

House Republicans repeatedly rejected Norton's amendments to allow the District to spend its local funds in the event of a federal shutdown. Although the District government barely avoided a shutdown when Congress and the administration reached a last-minute deal, we face a different situation today. If the debt ceiling is not raised, although the District government will have the authority to spend its local funds, it may not have the funds to meet its obligations.

Norton also warned that even if we get through the debt-ceiling crisis unscathed, the District government could face another shutdown on September 30, when the federal fiscal year ends. Congress has not approved the fiscal year 2012 Financial Services and General Government Appropriations bill, which includes the D.C. Appropriations bill, or any other appropriation bills for that matter.