https://www.americancityandcounty.com/wp-content/themes/acc_child/assets/images/logo/footer-logo.png
  • Home
  • Co-op Solutions
  • Hybrid Work
  • Commentaries
  • News
  • In-Depth
  • Multimedia
    • Back
    • Podcast
    • Latest videos
    • Product Guides
  • Resources & Events
    • Back
    • Resources
    • Webinars
    • White Papers
    • IWCE 2022
    • How to Contribute
    • Municipal Cost Index – Archive
    • Equipment Watch Page
    • American City & County Awards
  • About Us
    • Back
    • About Us
    • Contact Us
    • Advertise
    • Cookie Policy
    • Privacy Statement
    • Terms of Service
American City and County
  • NEWSLETTER
  • Home
  • Co-op Solutions
  • Hybrid Work
  • Commentaries
  • News
  • In-Depth
  • Multimedia
    • Back
    • Podcasts
    • Latest videos
    • Product Guides
  • Resources/Events
    • Back
    • Webinars
    • White Papers/eBooks
    • IWCE 2022
    • How to Contribute
    • American City & County Awards
    • Municipal Cost Index
    • Equipment Watch Page
  • About Us
    • Back
    • About Us
    • Contact Us
    • Advertise
    • Cookie Policy
    • Privacy Stament
    • Terms of Service
  • newsletter
  • Administration
  • Economy & Finance
  • Procurement
  • Public Safety
  • Public Works & Utilities
  • Smart Cities & Technology
  • Magazine
acc.com

Economy


Pixabay

Commentary

Drawn-out Congressional debt ceiling debate could have negative implications for cities

Drawn-out Congressional debt ceiling debate could have negative implications for cities

  • Written by Andy Castillo
  • 17th September 2021

An ongoing debate in Washington, D.C. about increasing the amount of money the nation’s Treasury Department can borrow to pay its bills is largely smoke and mirrors. At the end of the day, the federal government has an obligation to its people—defaulting on payments would have catastrophic economic consequences. But lengthy debate surrounding the subject has historically dampened the economy even if the ceiling is eventually raised.

The nation’s debt ceiling was first established in 1939 and, since the 1960s, has been raised by Congress 78 times—49 times under Republican presidents, including three times during Donald Trump’s administration, and 29 times under Democratic leadership. Most recently, Congress acted in 2019 to suspend the ceiling for a few years when it hit $22 trillion. That suspension ended in July and the ceiling was reinstated Aug. 1 at around $28.5 trillion, including debt held by the public and the government. 

Since then, without the ability to take on more debt, the Treasury Department has been taking what’s known as extraordinary measures to make sure payments continue—legal actions that include shuffling around funds, prematurely redeeming bonds (reinstating them later with interest) and withholding contributions from certain government pension funds, among other things. 

The clock is ticking. 

In a letter submitted to Congress this month, Treasury Secretary Janet Yellen estimated that “cash and extraordinary measures will be exhausted during the month of October.” If the ceiling hasn’t been raised by then, the government will default on its debt. For now, the Senate is in a deadlock. Democrats hold a simple majority and could raise the ceiling by tacking it onto a different spending bill, without the support of their across-the-aisle colleagues. But they don’t want to do it alone and Republicans are currently refusing to budge. Historically, debt ceiling votes have been leveraged to push through other agenda items and score political points.  

A governmental default on payments is unprecedented.  

In a memo issued Friday, the White House warned, “If the U.S. defaults and can no longer pay its obligations, billions of dollars in state aid and state-run but federal funded programs could be halted.” That includes disaster relief, Medicaid and other programs, education, public health, child nutrition and infrastructure spending. 

While it probably won’t come to a default, drawn out debate about the ceiling has historically dampened the economy and negatively impacted cities across the country.  

“When the U.S. was in a prior debt limit standoff, the S&P 500 fell by 17 percent in the months near the debt limit,” the memo says. “The U.S. economy has just begun to recover from the pandemic and a manufactured debt ceiling crisis would threaten the gains we’ve made and the future recovery.” 

In the short time, a delay could push up interest rates, Yellen wrote in her letter to Congress. And in the long-term, it could negatively impact the nation’s credit rating—which has historically happened. In 2011, the rating firm Standard & Poor downgraded U.S. government debt for the first time in 70 years, citing political quagmire and extended debate in Washington, D.C. about raising the debt ceiling. 

“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short- term borrowing costs for taxpayers and negatively impact the credit rating of the United States,” Yellen said. 

Ahead of next month’s deadline, the U.S. Conference of Mayors, a trade association that represents more than 1,400 mayors of cities larger than 30,000 people, is likewise calling on Congress to “avoid the kind of brinkmanship that could threaten the American economy.” 

In a statement, Nan Whaley, the conference’s president and mayor of Dayton, Ohio, warned of the impact inaction would have on cities. 

“This is no time to allow partisan politics to reverse the progress we’ve made. Congress must act now to secure our economic future and maintain our global standing,” Whaley said. “Both parties in Washington have added to our debt, and both parties have an obligation to make sure the United States can continue to pay its bills. This is one of the most basic responsibilities of Congress, and there is no good reason for lawmakers to create a crisis that undermines the full faith and credit of the United States.” 

Inaction to increase the debt ceiling “would send our economy into freefall and destroy the federal-local partnership that is so important to American cities. Health care, food security, education and housing would all be in grave danger. A default would also trigger catastrophic ripple effects through credit markets and hamper the ability of city governments to finance our own services,” Whaley said. 

Tags: homepage-featured-2 homepage-featured-4 Economy News Economy News Commentary

Most Recent


  • Amid spike, federal transportation department launches initiative to curb traffic-related deaths
    While stay-at-home orders might be a thing of the past, the pandemic’s impact is still felt daily through expectations to socially distance, the prevalence of masks in high risk areas like hospitals, and the stubbornly high annual rate of traffic-related deaths. Traffic fatalities hit a 16-year high in 2021, and preliminary data points to a […]
  • businesses
    Engaging businesses to strengthen your community
    A prosperous business community epitomizes effective city leadership and fuels economic growth. But to fully understand and address specific needs within your community, cities must engage with local stakeholders and businesses to cultivate and maintain a strong business ecosystem. Business engagement plays an essential role in a city’s retention of businesses, helping to foster organic […]
  • Report: Some public employees face financial hardship; comprehensive pay packages proved 'a pathway toward economic security'
    Many who work in public service, in professions that center around helping others, are themselves struggling to make ends meet and face financial hardship. Addressing these needs, the public employers they work for are well positioned to help them out, according to a report published Thursday by the MissionSquare Research Institute, “Examining the Financial Wellbeing […]
  • These 10 American cities are well prepared for a tech-based future
    From smart devices to electric vehicles, the success of technological advancements rely on municipal grids and infrastructure. Some cities are better equipped for the future than others. A new analysis from the tech company ProptechOS ranks the top 10 American cities best positioned for a “smart city future.” “But new technologies can only support us […]

Leave a comment Cancel reply

-or-

Log in with your American City and County account

Alternatively, post a comment by completing the form below:

Your email address will not be published. Required fields are marked *

Related Content

  • NLC, NACo laud Senate's passage of $1.2 trillion infrastructure spending plan, call on House to do the same
  • Advocacy organizations voice support for bipartisan infrastructure plan
  • Shutdown saps $24 billion out of U.S. economy
  • Economic confidence plummets during shutdown

White papers


Modernizing government services for today’s resident expectations

24th January 2023

Preparing Your Community Now for the Next Generation of Older Adults

18th October 2022

Helping Government Fleets Achieve Their Goals

30th September 2022
view all

Webinars


How To: Evaluate Digital Government Service Delivery Technologies

23rd January 2023

Using Technology to Enhance Communications

29th November 2022

Learn the benefits of transforming and automating your Contract Management process

4th November 2022
view all

PODCAST


Young Leaders Episode 4 – Cyril Jefferson – City Councilman, High Point, North Carolina

13th October 2020

Young Leaders Episode 3 – Shannon Hardin – City Council President, Columbus, Ohio

27th July 2020

Young Leaders Episode 2 – Christian Williams – Development Services Planner, Goodyear, Ariz.

1st July 2020
view all

GALLERIES


These 10 American cities are well prepared for a tech-based future

1st February 2023

Report: While remote work is causing offices to empty out, walkable cities are still in high demand

26th January 2023

10 American cities with a great downtown

24th January 2023
view all

Twitter


AmerCityCounty

Amid spike, federal transportation department launches initiative to curb traffic-related deaths dlvr.it/Shvs31

3rd February 2023
AmerCityCounty

Engaging businesses to strengthen your community dlvr.it/ShvZn0

3rd February 2023
AmerCityCounty

Report: Some public employees face financial hardship; comprehensive pay packages proved ‘a pathway toward economic… twitter.com/i/web/status/1…

2nd February 2023
AmerCityCounty

Strategic Budgeting for Modern Government dlvr.it/ShrHmD

2nd February 2023
AmerCityCounty

These 10 American cities are well prepared for a tech-based future dlvr.it/Shp7sH

1st February 2023
AmerCityCounty

How public health can build a “one health” infrastructure for the future dlvr.it/ShnlKm

1st February 2023
AmerCityCounty

Four Steps to Better Municipal Fleet Fuel Purchasing dlvr.it/ShnbWP

1st February 2023
AmerCityCounty

Report: With increase popularity of e-bikes and e-scooters, there’s a need for ‘safe and connected infrastructure’ dlvr.it/ShlKmJ

31st January 2023

Newsletters

Sign up for American City & County’s newsletters to receive regular news and information updates about local governments.

Resale Insights Dashboard

The Resale Insights Dashboard provides model-level data for the entire used equipment market to help you save time and money.

Municipal Cost Index

Updated monthly since 1978, our exclusive Municipal Cost Index shows the effects of inflation on the cost of providing municipal services

Media Kit and Advertising

Want to reach our digital audience? Learn more here.

DISCOVER MORE FROM INFORMA TECH

  • IWCE’s Urgent Communications
  • IWCE Expo

WORKING WITH US

  • About Us
  • Contact Us

FOLLOW American City and County ON SOCIAL

  • Privacy
  • CCPA: “Do Not Sell My Data”
  • Cookie Policy
  • Terms
Copyright © 2023 Informa PLC. Informa PLC is registered in England and Wales with company number 8860726 whose registered and Head office is 5 Howick Place, London, SW1P 1WG.