DiNapoli Warns of Potential Harm for NYS if Feds Default on Debt

By Karen DeWitt

Albany, New York –
New York State Comptroller Tom DiNapoli says if President 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.

State Comptroller Tom DiNapoli says lawmakers in Washington are creating a climate of deep uncertainty by "playing chicken" with the debt ceiling deadline of August 2nd. In addition to sending jitters through the world economy, DiNapoli says a possible default on the nation's debt could have repercussions for New York State as well.

The state's massive pension fund, which DiNapoli oversees, would be hurt by a sudden drop in the stock market.

"This could throw the markets in a tail spin that will hurt New York's pension funds ," said DiNapoli. "At a time when we are still digging out from the great loses of 08 and 09."

He says 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 dollars 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, though he says that's a "worst case scenario".

"If those monies aren't forthcoming, where come up with the money to fill those gaps and still provide services?" DiNapoli 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, says DiNapoli.

The Comptroller says school districts and local governments would likely be even more deeply impacted, because they are also operating on tight budgets and some are even borrowing just to meet operating expenses.

"If it's going to cost more to borrow money, that's an unanticipated expense, and means there will probably have to be a cut somewhere else," the Comptroller said.

Social security payments- and Medicare 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 money. He says his office is already getting worried calls from elderly New Yorkers.

DiNapoli says the potential of defaulting on the national debt would be an "unprecedented" event, and admits that nobody really knows what the consequences will be.He says everyone in Washington "needs to blink".