U.S.
7:38 am
Sat July 30, 2011

Preparing For Debt Fallout Across The Nation

If Democrats and Republicans are unable to meet the Tuesday deadline for raising the debt ceiling, and the Treasury starts running short of money, the government will have to start making choices about which bills to pay. On the West Coast, as elsewhere in the country, taxpayers and state officials are considering what would happen if Social Security and medical benefits really stop.

Diana Stadden is really counting on the federal government not to miss any payments. Stadden lives in a small house near the freeway in Tacoma, Wash. She works as a lobbyist for a nonprofit for the developmentally disabled, and she has a family that depends heavily on the federal government. Her 18-year-old son has autism, and her elderly mother and aunt share a mobile home nearby.

"Yeah, I'm kind of squeezed in the middle of all of this because between Medicaid, Medicare and Social Security, all three of those things are somehow being used either by my son, or my mom or my aunt," she says. "Plus, at some point in time, I hope there's something there for me when I retire."

Stadden is politically savvy; her phone makes bird noises as tweets come in from President Obama. She says she never thought debt-ceiling standoff would really lead to a default, but after listening to some conservative Republicans, she's not so sure.

"I hear them saying, 'Well let's just let it default and see what happens, because we don't believe the sky's really going to fall.' And that scares me," Stadden says.

It scares her that this could all somehow lead to her taking financial responsibility for her mother, her aunt and her disabled son.

"That would be quite a strain on me. So yeah, I'm becoming much more aware of it and aware of what the repercussions would be if this does happen," she says.

State officials are having similar thoughts. Earlier this week, California borrowed over $5 billion, in case the feds turn off the tap. State Treasurer Bill Lockyer says the state regularly borrows money to smooth out its cash flow, but he learned a lesson during the financial crisis, when turmoil in the credit markets made it suddenly a lot more expensive for the state to borrow that money.

"That could happen next week, I don't know. I hope not. But we wanted to avoid any possibility of that kind of problem, so we did our traditional summer borrowing early, to avoid that kind of problem," Lockyer says.

In Washington State, the director of the Office of Financial Management, Marty Brown, says Olympia will be able to rely on its own financial reserves.

"We've got six to eight weeks of cash flow, so we can continue to operate without any major adjustments that way," he says.

But he says it would be a lot easier for the state to make contingency plans if the federal government would just give some indication about which programs it might cut. He especially hopes that list does not include Medicaid, medical care for the poor and disabled.

"It's a gigantic portion of our health care budgets, and that would affect not only our state programs, but it would clearly affect providers and lots of recipients," Brown says. "So our first priority would be please — and I think it's the same priority for all states – please, please, please, pay Medicaid."

Still, Brown says he expects it won't come to that — that cooler heads will prevail back in D.C.

There's a similar attitude at a senior center in Seattle. At lunchtime, these chipper Social Security recipients don't seem to be panicking about the possibility of missing their monthly checks. Earl Flowers says he's doubly vulnerable.

"I've got Army retirement and Social Security retirement, and I think they're both at risk. However, don't think it's going to happen. I don't think they're that big of fools to allow that to happen," Flowers says.

He — and everyone else — will find out soon enough.

Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.