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A Dead-Beat Government
by Joshua H. Silavent
Jul 31, 2011 | 2840 views | 0 0 comments | 6 6 recommendations | email to a friend | print
RENO — A deal to raise the nation’s debt ceiling still remains likely — even if it is only lifted temporarily — despite the seeming inability of Republicans and Democrats to grasp the meaning of compromise.

But what if Aug. 2 comes to pass with no brokered agreement? Will the country actually default on its debt, and if so, what will that mean for Americans?

There is much debate swirling about how immediately a default would be felt were it to occur at all.

The federal government will spend an estimated $307 billion in August while revenues only total about $172 billion. This means that if the debt ceiling is not raised, Washington will have to makes some tough choices on what bills to pay, leaving Social Security, Medicare and Medicaid recipients, as well as those collecting unemployment checks and other social services, at risk.

The prospect of having to prioritize who gets paid and who doesn’t is daunting, to say the least, and certainly a motivator for politicians to find a solution to the debt ‘crisis.’

In the meantime, the country faces the possibility of having its credit rating downgraded, and the stock markets have already shown volatility as the debt ceiling deadline grows more imminent.

For all these reasons, it is necessary to consider the consequences of default and how it would be felt in Reno-Sparks, Washoe County and across the Silver State.

It is important to note that while the impact of default can be measured in many ways, government officials remain uncertain about the extent, and only time will reveal the full implications.

“We really don’t know what it means,” said Steve Driscoll, Sparks assistant city manager, about how a default would trickle down to the municipal level.

The city’s budget is built based on cost estimates, and officials do have some concern that a default could result in rising prices for commodities and supplies.

“We feel somewhat sheltered” from the fallout of a default, Driscoll said, but he added that inflation and the devaluation of the dollar are possibilities that could punch a hole in the budget.

Larger ramifications are likely to be felt at the county level, where federal dollars are used to support a host of social services.

“It will affect us,” said Washoe County Commissioner Kitty Jung.

For example, delays in funding could bring an end to programs that vulnerable populations, such as low-income families and senior citizens, rely on for health care and other support.

The situation is even more tenuous at the state level. As many as 11,000 employees across 18 agencies could be affected if federal dollars dry up. Some of these jobs are paid through federal monies while many agencies depend on federal funds to operate.

Meanwhile, salaries for active-duty military personnel could be delayed if default happens. Nevada’s 57 military bases, which employ about 15,000 soldiers, could feel the pinch as a result.

State Controller Kim Wallin said that enough cash is on hand to deal with the immediate hit of a default, but just how much is enough will depend on which payments the federal government forgoes and which it makes good on.

“We could be wiped out pretty quick,” Wallin acknowledged. “It’s pretty scary.”

For example, the federal government funds the state’s Medicaid program, which accounts for about 17 percent of the state budget. If Washington shuts off or slows these funds, dependent Nevadans could be in a world of hurt.

“I think a default would have serious consequences for Medicare and Medicaid in Nevada,” said Bob Fulkerson, executive director of the left-leaning Progressive Leadership Alliance of Nevada.

If Medicaid is not paid and doctors are not reimbursed, there might be layoffs at hospitals and those living in poverty might not be able to find medical care.

“It has a spiral effect that goes beyond people’s health needs,” Fulkerson said.

Indeed, small businesses, the housing market and employment levels would likely feel the spiraling aftermath of default.

Default would lower the nation’s credit rating, leading to higher interest rates and making it harder for businesses to be approved for loans and gain access to capital. New hiring would likely cease as a result.

 “That would also mean that government borrowing would become more expensive, meaning that our tax dollars won’t go as far,” said Tray Abney, director of government relations for the Reno-Sparks Chamber of Commerce.

Mired in a recession and slow recovery, the nation’s economic track is dependent on business growth and job creation. But with default looming, businesses are showing an unwillingness to invest.

“Business owners are already pulling back and sitting on their cash,” said Chris Abts, president of Reno-based Cornerstone Retirement Group.

Rising interest rates would also cause real estate sales to slow.

“If long-term interest rates go up, there will be a direct response on pricing,” said Mitch Argon, an agent with CalNeva Realty, citing one possible fallout from a debt ceiling debacle.

Investment portfolios also present a major worry, especially for retirees.

Individuals looking to retire in the next five to 10 years could be most susceptible to losses.

“Those people are at greatest risk,” Abts said.

In the end, whether a deal gets done or the nation defaults, the national debt will remain a sticking point in partisan politics and, one way or another, must be addressed.

“At a certain point, there’s a day of reckoning,” Abts said.

That day might come Aug. 2.
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