Ambiguity Of Possible Debt Crisis Stymies State Lawmakers

By Sarah Birnbaum

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Jul. 27, 2011

A small group of college students makes an appeal to President Obama and Congressional leaders meeting inside the White House to reach a compromise during negotiations on the debt limit crisis, in Washington on Saturday. (AP)



BOSTON — Beacon Hill is trying to prepare for the worst in case Capitol Hill fails to find a solution to the debt limit crisis, but a lack of information is making it difficult for lawmakers to act proactively.

Governor Deval Patrick’s budget chief, Jay Gonzalez, says failure to reach a compromise could be devastating for Massachusetts.
 
"We would be seeing higher interest rates which would affect our cost of borrowing at the state level. We’ve got about 4,500 state employees who are funded in whole or in part from federal money, and we get $100 to 200 million a week, depending on the week, in federal funding, to fund critical programs: Health care, and other services, particularly safety net services for people." Gonzalez said.
 
Gonzalez says state agencies are working on contingency plans, but it's been difficult because the U.S. Treasury and the Obama administration aren’t telling states which funding streams would continue and which would be cut if the debt limit is not raised.

The federal government could decide, for instance, to pay for Medicaid but not for unemployment insurance. Or it could decide to pay for social security benefits, but not for education. Gonzalez says there’s no way to know right now.
 
“We’re operating in the dark in a lot of areas and it's hard to develop complete contingency plans without having all the information we need from the Federal government about the direction we’re headed,” Gonzalez said.
 
State treasury officials say that Massachusetts is in a better situation than some other states, which are considering issuing bonds or other ways to raise quick revenues. Massachusetts has $2 billion in cash on hand that could tide some programs over, at least temporarily. But state treasury officials warn that the longer the debt ceiling isn’t raised, the more tenuous the situation becomes. 

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