By Erik Wasson - 07/24/11 06:05 PM EDT
Local mayors are warning Congress that failing to raise the debt ceiling will devastate local communities while also demanding job-creating measures, including stimulus spending.
At a Friday meeting of the U.S. Conference of Mayors (USCM), participants called on Congress to find a way to compromise and raise the debt ceiling. The action by local leaders follows appeals from state governors who worry about the impact of a default on their budgets.
Mayor Mike McGinn of Seattle told The Hill in an interview there is a huge disconnect between Washington and the public which is focused on high unemployment. He called the debt ceiling debate a manufactured crisis and deep cuts the wrong thing for the economy.
“People don’t come up to me and say solve this debt-ceiling crisis, they want us to create jobs,” he said.
“Last year we had zero cranes in Seattle, now we have 15. Things are just starting to pick up, people are just starting to get a little confident,” he said.
McGinn said mayors of all political stripes agreed at the meeting that Congress should compromise to raise the debt ceiling.
“Creating turmoil in the financial markets and cutting direct payments to our citizens does not create jobs,” he said.
McGinn emphasized that if the U.S. does not raise the debt ceiling by Aug. 2, government assistance to the poor and elderly could be cut off and that could be a deep drag on the economy.
Mayor Ralph Becker, a Democrat of Salt Lake City, Utah told The Hill that Congress should include economic stimulus such as increased spending on infrastructure.
He said the debt ceiling crisis worried him. “It is a cloud getting darker every day…I really feel our economy could come to a halt,” he said.
Becker emphasized that the U.S. is massively integrated and his city relies on federal grants to revamp poor neighborhoods and poor citizens rely on federal entitlements.
While Becker does not fear civil unrest if payments stop, he too fears another economic downturn.
If Aug. 2 does not see a debt ceiling increase, interest rates could spike and disrupt the municipal bond market, he said. That would cause Salt Lake City to slow down its infrastructure spending.
“I probably sign a bond document once or twice a month. The way we construct that document is based on prevailing interest rates,” he said. “These are used for sidewalk repair or to fix roads. We have been investing a lot in infrastructure during the downturn because construction costs are down and interest rates are low.”
He said that Salt Lake City officials are already worried that Congress is trying to rescind Tiger II grants it is using for a street car project. That project won’t necessarily be affected by a short term delay in raising the debt ceiling.
Becker said mayors are unified in saying that Congress has to find a way to compromise and raise the debt ceiling. He said that in his view the solution should include both spending cuts and tax revenue, the solution most localities have employed.
The Mayors’ conference also urged Congress to reauthorize the surface transportation funding bill which expires Sept. 30 as a way to stimulate the economy.
Elizabeth Kautz, the Republican mayor of Burnsville, Minnesota said that job creation does not necessarily mean more infrastructure spending and that she is urging Congress not to slash job training spending.
Kautz said that her city is on a solid financial footing with a AAA rating, so she does not expect direct fiscal implications from a default. But she said the economy could feel catastrophic effects.
“They need to focus on creating an environment for job creation,” she said.
Another urban group, the National League of Cities, also weighed in on the debate Friday.
“At a time when the consequences of the deep recession continue to play out in our communities with too many residents unable to find a job, too many small businesses unable to access the credit they need to hire workers and serve their neighborhoods and too many families struggling to hold on to their homes and to make ends meet, what America needs from Washington is action, not more gridlock,” the National League of Cities said in a statement.
Gov. Deval Patrick (D-Mass.) warned congressional leaders last Friday that failure to act in time on the debt ceiling would immediately cost states hundreds of millions of dollars in lost federal payments.
"Massachusetts draws down over $200 million in federal reimbursements weekly for programs ranging from Medicaid to food assistance," Patrick wrote to leaders of both parties.
Moody's Investors Service warned this week that it was putting on negative watch the top AAA rating of five states — Maryland, New Mexico, South Carolina, Tennessee and Virginia, due to the federal debt standoff.
The firm said that if the federal government's rating was downgraded, it is "likely" those states would also see their rating downgraded within roughly a week, although each would be evaluated at the time on a case-by-case basis.