Infographic: How a Federal Default Would Hit States

By: and - July 29, 2011 12:00 am

If the federal government begins defaulting on its obligations next week, it will clearly have some impact on states. The question nobody knows the answer to is: How much? A lot would depend on how the U.S. Treasury decides to prioritize its payments, as this analysis  from the Bipartisan Policy Center makes clear. In some scenarios, programs that states rely heavily on federal dollars for, such as Medicaid, food stamps or welfare, could get short shrift. In other scenarios, economic damage could ripple out through states if federal employees don’t get paid, veterans don’t receive benefits or retirees don’t see Social Security checks. States also are concerned about their access to credit markets. Moody’s has warned five states that if the federal government loses its Aaa bond rating, they likely will, too. Maryland is one of them. As Warren Deschenaux, director of the Maryland Department of Legislative Services, puts it, “About all we can do is wait and worry.”


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