A potential default on the federal government’s debt would have dire consequences for the District, two officials warn.
The chief financial officer of D.C., Natwar M. Gandhi, sent a letter to the mayor and city council describing his concerns about the potential negative impact on the District if the federal government failed to raise the debt ceiling.
Gandhi estimates $2 billion in direct federal revenues for the District, mostly for Medicaid, could be in danger. Medicaid funding is split 70/30 between the federal government and the District, with D.C. paying the smaller share. If federal payments ceded, the District would likely not be able to take on the additional burden.
Gandhi writes that D.C. would either have to cut services, make up for the lost federal revenue by raising local taxes, or eliminate entire programs.
Ward 2 council member Jack Evans (D) says he’s “very concerned” about the debt crisis and the potential impact of a default. Told about the letter, Evans said, “I agree with the CFO’s analysis.”
“We are going to be in a situation where there are expenses we must meet, others we can skip, we need to identify what those are,” Evans said.
Gandhi also warns that a federal default and the resulting disruption of the credit markets could prevent the District from borrowing money to pay its own bills. "In the extreme," he writes, this could mean D.C. would be unable to pay its employees or obligations to retirement funds.
Gandhi calls on D.C. officials to ready an emergency plan in case a federal default becomes unavoidable. Evans criticized past spending that shrunk D.C.'s resources.
“It highlights why I voted against the last two budgets. The city spent down its reserves from $1.6 to 700 million. If we had not done so we’d be able to weather this storm economically,” Evans said.