Long-Term Fix Urged For Debt

WASHINGTON — State and local groups on Monday urged congressional leaders and the Obama administration to quickly reach a long-term solution to the debt-limit crisis, warning it has stalled key legislation.

As of late Monday, Democratic leaders in the Senate had proposed cutting $2.7 trillion in spending, a dollar-for-dollar match to an increase in the debt ceiling that would last through the 2012 elections.

House Republican leaders were instead pushing for a two-step plan that would cut up to $1.2 trillion in discretionary spending over 10 years while increasing the debt limit by about $1 trillion through early next year. The proposal also calls for a bipartisan committee to find additional savings and for a balanced budget amendment to be voted on by the end of the year.

Officials from the municipal groups said they oppose a short-term increase in the debt limit.

The political acrimony associated with the debt-ceiling vote has bunged up the legislative process, stalling work on highway, aviation, and other bills. A short-term fix to the debt ceiling would further delay congressional action on spending issues and leave bond investors anxious, they said.

“Most of our state finance people would prefer not to have to go through this again for a while,” said Scott Pattison, executive director for the National Association of State Budget Officers.

The debt-ceiling paralysis “has become an all-consuming issue and the other issues that are so important to this country on the domestic side that we’re interested in just are not able to be considered right now,” said Lars Etzkorn, legislative council for the National League of Cities. If a short-term debt ceiling increase “just gets us over the hump, [then] I don’t really know where that gets us,” he said.

Also, as the days creep closer to Aug. 2, the date after which the United States runs out of money to pay its bills, according to Treasury Department officials, governmental groups worry their municipal bonds may be headed for trouble.

A federal default “will have an immediate and catastrophic impact on our cities,” Los Angeles Mayor Antonio Villaraigosa, the U.S. Conference of Mayors’ new president, warned Friday.

If U.S. Treasuries are downgraded, “the security of local governments’ tax-exempt bonds would be under threat,” he said.

The governmental groups are calling for an increase in the debt ceiling that would last through the 2012 election. Bond investors will react more favorably to a long-term debt-ceiling solution, officials said.

“The more stability you can bring about in the market, the better off I think everybody’s going to be in the long run,” said Larry Jones, assistant executive director for the U.S. Conference of Mayors. “There’s really no logical reason behind not going ahead with at least a two-year extension.”

As the debt-ceiling fight absorbs the oxygen in Washington, federal lawmakers have lost focus on the economy and job growth, the groups’ officials said.

“Don’t lose sight of jobs,” Jones said. “At the end of the tunnel, if we don’t hurry up and get more jobs created we will continue to have this problem.”

Some federal projects have already been halted. The Federal Aviation Administration said Monday that aviation projects nationally have stopped, and about 4,000 workers have been furloughed.

Unlike the federal government, state and local governments balanced their budgets and struggled to prevent downgrades amid the economic recession and lagging recovery, the groups said.

“Cities and states run their budgets totally differently than the federal government,” Etzkorn said.

If there is no debt-limit agreement by Aug. 2, 40% to 45% of federal obligations to issuers may not be paid. The stoppage would affect federal housing, community development block grant, homeland security, and other programs, he said.

Larry Naake, executive director for the National Association of Counties, said his group’s members are worried about dramatic cuts in discretionary spending.

“You have to have a balanced approach to solving the deficit problem,” he said.

“You can’t [cut] just the 12% of the budget that’s discretionary non-military spending because that’s only about $450 billion or $480 billion per year,” he added.

“By shifting costs of programs to state and local governments, you’re not solving a problem, you’re just transferring it from one level of government to the other. You can’t solve it by transferring costs and having unfunded mandates as well.”

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