States and the Federal Debt Limit

The federal government is expected to run out of money to pay its bills on or about June 1 if the debt limit is not raised or suspended. There is no agreement to do either yet; negotiations are ongoing. The House has passed legislation that couples an increase in the limit with deficit reduction (see Budget Brief 23-16). Senate leadership and the administration oppose this approach.

Absent an agreement, the federal government will be unable to meet all of its financial obligations and will need to determine how to proceed. According to the Secretary of the Treasury, “Treasury systems have all been built to pay all of our bills when they’re due and on time, and not to prioritize one form of spending over another.” Perhaps more importantly, the impact on national and global economies could be far worse for states than uncertainty surrounding federal payments.

This Budget Brief addresses questions surrounding the current situation.