MONTGOMERY, Ala. (WIAT) — As negotiations continue over the debt ceiling in Washington, state leaders in Alabama say there is reason for concern if the U.S. defaults on its debt.
State finance director Bill Poole says overall, there’s uncertainty and speculation over what exactly the effects could look like.
“How would it work? How would the Fed and the Treasury manage through that period of time relative to if there’s a default versus a solution?” Poole said. “The truth is nobody really knows but certainly it’s a concern for us in the state as it is for everybody.”
Poole says if the U.S. does default, it’s unclear how the Federal Reserve would support states, but he says it’s fair to say Alabama would not be getting federal dollars.
“I think from Alabama’s perspective, we would assume there would not be any meaningful federal support. We would be reacting in an effort to mitigate any negative impacts on the state,” Poole said.
Poole says the best thing the state can do to prepare is to stabilize its finances, pass strategic, conservative budgets, and set aside funds. He says he thinks the legislature is doing a good job of that during the current session.
“I’m confident the state is in as good a position as we can manage it at this point in time but again nobody really knows exactly what the future holds, so we’ll have to deal with that as it comes,” Poole said.
Carol Gundlach is a senior policy analyst with Alabama Arise, a group that advocates for policies helping those in poverty. She says there are quite a few programs that could lose funding.
“That includes things like housing assistance, things like energy assistance, a lot of programs in this little pot of federal programs called discretionary non-mandatory spending are in places that are easier to cut,” Gundlach said.
But it’s not just recipients of those programs. Gundlach says really everyone could see ripple effects, with possible increases in interest rates, a hit to retirement investments and more.
“It would just be absolutely devastating for almost everyone in the state and almost everyone in the country,” Gundlach said.
Gundlach says while there are many unknowns surrounding a potential default, there is more information about some of the program cuts being proposed to avoid it that Alabama Arise does not support.
The Treasury Department says the U.S. could default on its debt as early as June 1 if lawmakers don’t come to an agreement over the debt ceiling.