April 28, 2023

Governor, Senators respond to congressional debt ceiling fight

New Mexico’s Democratic governor and senators responded to the debt ceiling bill passed by the House Wednesday. The bill seeks to extend the debt limit with budgetary cuts some have called “draconian.” New Mexico’s senators refer to the bill as the “Default on America Act.”

HR 2811, also known as the Limit, Save Grow Act of 2023, passed the U.S. House on a party line vote of 217-215 Wednesday.

Gov. Michelle Lujan Grisham signed off on a letter along with nine other governors to Senate and House leadership opposing HR 2811.

“We write today to express our firm opposition to any efforts that would cut funding for programs that hundreds of millions of Americans pay into and rely on for their health care, retirement benefits, and more,” the letter states. “As governors, we are uniquely positioned to best understand the needs of our residents, and waivers represent a needed tool to meet those needs. We are united in our opposition to expanded work and work reporting requirements in any crucial safety net program, such as
SNAP, TANF, and Medicaid. We urge you to work in a bipartisan manner to find a solution that preserves funding for crucial programs that benefit all of our constituents.”

Sen. Martin Heinrich offered his comments on the bill’s passage in the House.

“(House Speaker Kevin) McCarthy’s Default on America Act hurts veterans, kids, seniors, public safety, jobs, and so much more,” Sen. Martin Heinrich said. “House Republicans’ plan isn’t a plan; it’s a political commercial and it’s wasting precious time. We need to be focused on lowering costs for Americans, not hiking up costs with default threats.  Should the President be talking to McCarthy? Sure. Is the Default on America Act a first step in negotiations? Not by a long shot.”

New Mexico Senator Ben Ray Luján, like Heinrich, a Democrat, agreed.

“House Republicans’ Default on America Act would hurt New Mexicans and throw the economy into chaos,” Luján said. “The GOP bill would kick New Mexicans off food and health programs, slash veterans’ health benefits, threaten education funding, and cut other vital programs. I will not support this bill or other Republican measures that would lead to fewer jobs and higher costs for New Mexicans.”

The NM Political Report contacted the entire New Mexico Congressional Delegation but only the senators responded in time for publication.

The bill seeks to suspend the debt limit through March 31, 2024 or until the debt increases by $1.5 trillion, whichever comes first; establishes discretionary spending limits for fiscal years 2024-2033; rescinds unobligated funds used to address the COVID-19 public health crisis and funds to the Internal Revenue Service; undoes executive actions for canceling student debt and enacting an income-driven plan for student loans; repeal or modify green tax credits such as those for renewable or clean energy and energy efficient property; establishes work requirements for Medicaid and expands those work requirements for SNAP and TANF programs and requires major federal rules that could cause an annual economic effect of $100 million or more be approved by Congress before those rules can take effect, according to the bill’s summary.

More: The debt ceiling debate and what it means to New Mexicans

A Senate bill, S. 1190, the End the Threat of Default Act, would eliminate the debt ceiling altogether as a means of ending the possibility of the U.S. defaulting on its loans based on the debt ceiling.

Hawaii Democrat Brian Schatz sponsored the Senate bill and Luján and Heinrich are among its 12 cosponsors.

The current discussions of the federal debt ceiling include the question of what would happen in the event of a default by the federal government.

The debt ceiling is the limit on how much money the federal government can borrow. It is set by Congress.

Should a default occur, military bases and both Sandia National Laboratories and Los Alamos National Laboratory would be profoundly affected as would infrastructure, UNM Associate Professor of Finance Reilly White told NM Political Report.

“That’s the really hard part is like, on one hand, you’re looking at this and saying, ‘Okay, so we’re spending a lot of money. Indeed, we cannot continue to spend a magnitude more than we bring in eternally,’ or else there are other negative consequences that come up with debt service on its own, but we have to pay as interest to make up the debt,” Reilly said.

The U.S. has not declared bankruptcy before, even though it has defaulted in the past. 

“Obviously, we haven’t done it before. It would be when you’re not, we cease the ability to pay on our debt and one outstanding question to that question is ‘does the U.S. Treasury have discretion on you know, how to prioritize the debt that we have?’” Reilly said.

In the event the debt ceiling is not increased, the question arises on whether or not the U.S. Treasury can take extraordinary measures to prioritize certain payments over others, Reilly said.

“That gets tricky, but effectively for at least some bondholders and as well as the others, it represents a default that represents a form of bankruptcy that a sovereign state would have and the consequences of that mirror the consequences of a bankruptcy higher credit rates, higher interest rates, economic, severe economic consequences,” Reilly said. “So that’s the really hard part. And it’s, you know, it’s functional that this is happening at the same time where people are losing their faith and frustration exists on both sides of the aisle involving the government’s ability to create balanced budgets and things but all of it is taken to the economy which has the biggest single human effect on people in this country and that’s why it’s  a thing everyone should be invested in, in following.”

In the event of a default or declaration of bankruptcy, the result would be dystopian at worst and more polarized at best.

“It’s difficult to say, but had we hit a political wall, the economy gets hit, let’s say in the worst possible consequences the government has to cut a lot of jobs and expenses.  Obviously, a severe recession comes as a consequence of that,” Reilly said. “And on the political side, I could imagine both sides could be blamed for this… Somebody who is on the right side of the aisle could argue this was due to decades of fiscal negligence of the Democrats. Democrats could argue on the left side of the aisle that this is a truly self-inflicted action that should have been controlled through the budget office, and the date through fiscal expenditures, and instead, where we’re taking an extreme route that has resulted in a recession, and it’s hard to say how the public would pan out on that blame. I imagine it would still be polarized.”