July 29, 2011 in Region

Washington has 6-8 weeks of cash left

McClatchy
 
Schweitzer says Montana can weather short U.S. default
By Matt Volz Associated Press HELENA, Mont. — Gov. Brian Schweitzer says Montana has enough cash in the bank to withstand a temporary delay in federal funding if the debt-ceiling showdown in Congress leads to a government default. The Democratic governor says the state ended the fiscal year with a $340 million surplus. He said today that cash would allow the state to weather the storm for a month or possibly longer if the government defaults because of gridlock over raising the nation’s debt ceiling. Some states are taking precautionary measures in protect themselves against a temporary delay in federal funding of education and health care. For example, California this week borrowed $5.4 billion from private investors as a hedge. But Schweitzer says he doesn’t anticipate a prolonged stalemate and Montana isn’t making any additional preparations.

Washington state Treasurer Jim McIntire says he has six to eight weeks of cash available to keep paying state-government bills if Congress fails to lift the debt ceiling in time and interrupts federal payments of about $500 million a month.

Even so, McIntire sent a letter to the state’s 11 members of the U.S. House and Senate on Monday, urging action and warning that inaction could “crush” the fragile global economic recovery. It also could put unwanted pressure on state banks and even larger ones if federal Treasury investments lose value, McIntire said Thursday.

“At this time, it is a much greater risk than these people recognize,” the first-term Democrat said, warning that global credit markets are at risk and that credit lines could freeze. “It is very reckless. It’s kind of shocking that people (in Congress) would take this kind of a risk with such a fragile recovery — with the state, national and global economy at such a risk.”

State budget director Marty Brown agreed Thursday that the state’s cash flow situation is better than in other states — including California, which is seeking $5 billion in loans to tide it over. But he, like McIntire, is worried about the economy and also about what the federal government might pay for if the state fronts money during an actual default.

“What our concerns now are — and they are not insignificant — is uncertainty, because this has never happened. We have no certainty from the (U.S.) Treasury about what they will pay,” Brown said.

“If they decide Medicaid is one of the things they don’t pay, that is a big deal. … You would think they would prioritize things like Social Security, Medicare, Medicaid and unemployment benefits,” Brown added. “But it’s not clear Treasury can prioritize. They may have to pay bills as they come in the door.”

McIntire said his agency started taking steps to get ready a month ago, ensuring that they did not buy short-term Treasury investments that might come due in August and into mid-September.

”We’re trying to avoid having anything to sell with a maturity date in this time frame. The idea is we could go six to eight weeks pretty much on our cash portfolio and put off cashing out the rest of our Treasury funds until mid-September or so,“ McIntire explained.

He also said that if the default question gets past Aug. 2-4, he thinks the market reaction will be significant but that lawmakers also will resolve the issue quickly. Even so, the state bears other risks with its investments in equities, which could lose value, but more important, the credit markets could freeze up again.

”The big risk for the state is this tips us back into a recession, because our state revenues haven’t been growing as fast as forecasted,“ he said.

MEDICAID HELP

Jim Stevenson, spokesman for the Health Care Authority that oversees the federal-state Medicaid medical program for the poor, said his agency was taking a look at its ability to pay bills in the event federal funds are cut off. Brown had asked the agency to weigh whether it could temporarily subsidize paychecks for state employees who are paid by federal money and make other payments.

But Health Care Authority leaders had not yet seen a near-term danger of not being able to make payments on vital programs they administer. Stevenson noted that the looming threat is the same as when Congress flirted with hitting a debt limit in 2010 before raising it. At that time, he said: ”Our expectation was that Medicaid is an urgent service that would not be interrupted immediately. But any long-term disturbance or revenue change could have an effect … . I think we’re in a wait and see mode.“

He said there is a difference today from the Clinton-era government shutdown forced by Republicans in Congress in 1995 — and that is the lack of an explicit promise to repay the states for spending their cash.

”Under the shutdown, there was agreement in 1995, that yes we’ll pay you back,“ Brown said. ”We don’t have that assurance yet. Treasury isn’t giving out any guidance. … So we’re more in the uncertain stage, which makes it very difficult to plan.“

WHAT WILL BE CUT?

Then there is the question of what spending might be cut as part of a deal to raise the debt limit. ”Even if they don’t default … it would be nice to know what they are doing in cuts,“ Brown added. ”If the cuts are in Medicaid, then that’s a problem.“

McIntire set off a reaction as news of his letter went out this week, although he says he didn’t hear back from any members of Congress to whom he’d written. His letter was blunt:

”I am writing today to implore you to find a way to avert a national default by passing a balanced, thoughtful and long-lasting budget solution,“ his letter began. ”Failure to act will likely crush a fragile economy, irreparably harm struggling businesses and families, damage responsible state governments, and undermine emerging stability among our community banks. This is a risk we cannot afford to take.“

Typically the national debt limit is raised in order to pay for what Congress has already agreed to pay for in the budget. But this year, conservative tea party members in the U.S. House, where the GOP now has a majority, have forced the showdown — and first real possibility of a U.S. debt default — by using the debt-limit vote as a way to extract additional spending cuts from majority Democrats in the Senate.

A few recent national polls shows a majority of the public favors President Barack Obama’s earlier proposals to shrink future deficits by cutting spending and raising taxes.

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