Moderate Senate Democrats are moving towards a deal that would finally end the longest government shutdown in history as state and local governments issue warnings about the repercussions of continued financial distress.
"Unlike the federal government, states and localities cannot shut down," said representatives of the "Big 7."
"During a shutdown, federal responsibilities are shifted to state and local governments which is unsustainable, as state and local governments do not have the tools, resources or capacity to absorb those duties."
The Big 7 includes the National Governors Association, the National Association of Counties, the National League of Cities, the National Council of State Legislatures, The Council of State Governments, the United States Conference of Mayors and the International City/County Management Association.
They are joined by the Government Finance Officers Association as signatories on a letter addressed to majority and minority leaders of the House and Senate calling for a solution to the shutdown.
The framework for a solution is coming into focus as the Senate voted on Sunday night to advance a bill that would end the impasse with seven Democrats breaking ranks accompanied by Maine's Senator Angus King, an independent.
The list includes Sens. Dick Durbin, Jacky Rosen, John Fetterman, Catherine Cortez Masto, Jeanne Shaheen, Maggie Hassan and Tim Kaine. None of the defectors are up for reelection in 2026.
Under terms of the agreement, Republicans promise to vote on Democratic-drafted extension of expanded health insurance before they expire on Dec. 31.
More than 4,000 federal workers slated for firing would be retained.
The deal would also extend current funding levels through Jan. 30. Appropriations for Departments of Agriculture and Veterans Affairs and legislative operations would be extended for a year along with the farm bill.
Senate Minority Leader Chuck Schumer, D-N.Y., and House Minority Leader Hakeem Jeffries, D-N.Y. are both skeptical of the deal in its current form.
Schumer is also in hot water with his own party who are holding him responsible for the Democrats who jumped ship.
The letter also lays out risks for the future once the dispute is settled.
"History has shown that even after a shutdown ends, states and localities will feel its ripple effects for months," said the groups.
Fitch Ratings adds to the chorus of voices issuing warnings about future federal funding to state and local governments as they express concerns about the longer-term effects on state and local budgets inflicted by the One Big Beautiful Bill.
"State and local governments are increasingly assuming fiscal responsibilities that have typically been shouldered by the federal government," said Fitch. "This could amplify pressures during periods of fiscal stress and increase state and local government credit risk."
Fitch calls out the extra burden of shifting Medicaid and Supplemental Nutrition Assistance Program costs from the federal government to the states along with the effects of reforming the Federal Emergency Management Agency.
"Significant changes to the scale of federal FEMA aid would increase credit risk for state and local governments at a time when billion-dollar natural disasters are increasing in frequency and cost," said Fitch.
"State and local governments have flexibility to manage increased costs following natural disasters while awaiting federal reimbursement, but federal support can be important to maintaining long-term fiscal and credit stability."
