Budget Brief 11-12
July 27, 2011

The federal government is expected to reach its debt limit on or about August 2, 2011. To date, there is no agreement to raise the limit, although negotiations are ongoing. Absent an agreement, the federal government will be unable to meet all of its financial obligations. It will then face the need to choose which obligations it will pay and which it will defer until the debt limit is raised. Depending on the choices made, states are likely to feel the impact of reduced or delayed federal payments and reimbursements.

As part of the debt ceiling negotiations, various proposals are under consideration that would achieve significant federal deficit and debt reduction over the upcoming years. All of these proposals feature significant reductions in federal spending.

This Budget Brief addresses two questions that FFIS has received repeatedly in the last several days:

  • What will it mean for states if the debt limit isn’t raised?
  • What will it mean for states if an agreement is reached to raise the debt limit and reduce federal spending over the next several years?