President Barack Obama and Congress do not agree on a way to increase the federal debt ceiling, the default could affect New York State in a number of ways — from a weakened state pension fund to significant gaps in the state budget, the state's comptroller warned.
Albany, NY –
New York State Comptroller Tom DiNapoli said lawmakers in Washington, D.C., are creating a climate of uncertainty by "playing chicken" with the debt ceiling deadline of August 2.
In addition to sending jitters through the world economy, a possible default on the nation's debt could have repercussions for New York State — and the state's massive pension fund, which DiNapoli oversees, would be hurt by a sudden drop in the stock market, he said.
"This could throw the markets in a tailspin that will hurt New York’s pension funds at a time when we are still digging out from the great loses of '08 and '09," DiNapoli said.
He noted a potential decline in the market could also affect stock dividend payments for many working and retired New Yorkers who are invested in stocks.
The New York State budget could be in the red by $7 billion in the next two months alone.
The federal government is due to make billions of dollars in payments to New York in August and September, the bulk for the federal and state shared Medicaid program.
DiNapoli says there’s a chance, though remote right now, that the legislature would have to return to deal with another budget deficit — although he said that's a "worst-case scenario."
'If those monies aren’t forthcoming, where do we come up with the money to fill those gaps and still provide services?" he asked.
A drop in nation's credit rating caused by a debt default could also affect states' credit ratings. That would make it more expensive for state and local governments to borrow money for capital projects, like road and bridge repair because interest rates would be higher, DiNapoli said.
School districts and local governments would likely fell an even greater impact because they are operating on tight budgets and some are even borrowing just to meet operating expenses.
"If it's going to cost more to borrow money, then that's an unanticipated expense, and it means there will probably have to be a cut somewhere else," he said.
Social security payments and Medicare could be delayed. The state could not do much about that, but seniors who suddenly have no money to pay rent or doctors' bills might seek help from county social service agencies, costing local governments more money.
The comptroller said his office is already getting worried calls from elderly New Yorkers.
DiNapoli said the potential of defaulting on the national debt would be an "unprecedented" event, and that everyone in Washington "needs to blink."