WASHINGTON (AP) — Senate leaders announced an agreement Thursday to extend the government’s borrowing authority into December, temporarily averting an unprecedented federal default that experts say would have devastated the economy.
“Our hope is to get this done as soon as today,” Senate Majority Leader Chuck Schumer declared as he opened the Senate.
In their agreement, Republican and Democratic leaders edged back from a perilous standoff over lifting the nation’s borrowing cap, with Democratic senators accepting an offer from Senate GOP leader Mitch McConnell.
McConnell made the offer a day earlier just before Republicans were prepared to block longer-term legislation to suspend the debt limit and as President Joe Biden and business leaders ramped up their concerns that a default would disrupt government payments to millions of people and throw the nation into recession.
The Senate leaders had worked into the night hammering out the details.
“The Senate is moving forward,” McConnell said Thursday.
Wall Street continued to rally on the news. The S&P 500 rose 1.5% by midday, and the Nasdaq composite, with a heavy weighting of technology stocks, rose 1.8%.
The agreement sets the stage for a sequel of sorts in December, when Congress will again face pressing deadlines to fund the government and raise the debt limit before heading home for the holidays.
AP Photo/J. Scott Applewhite
Senate Majority Leader Chuck Schumer, D-N.Y.
The agreement will allow for raising the debt ceiling by about $480 billion, according to a Senate aide familiar with the negotiations who spoke on condition of anonymity to discuss them. That is the level that the Treasury Department has said is needed to get to Dec. 3.
“Basically, I’m glad that Mitch McConnell finally saw the light,” Bernie Sanders, the independent senator from Vermont, said late Wednesday. The Republicans “have finally done the right thing and at least we now have another couple months in order to get a permanent solution.”
Sen. Chris Murphy, D-Conn., added that, assuming final details in the emergency legislation are in order, “for the next three months, we’ll continue to make it clear that we are ready to continue to vote to pay our bills and Republicans aren’t.”
Unsurprisingly, McConnell portrayed it differently.
“The pathway our Democratic colleagues have accepted will spare the American people any near-term crisis, while definitively resolving the majority’s excuse that they lacked time to address the debt limit through (reconciliation),” McConnell said Thursday. “Now there will be no question: They’ll have plenty of time.”
Congress has just days to act before the Oct. 18 deadline when the Treasury Department has warned it would quickly run short of funds to handle the nation’s already accrued debt load.
McConnell and Senate Republicans have insisted that Democrats would have to go it alone to raise the debt ceiling and allow the Treasury to renew its borrowing so that the country could meet its financial obligations. Further, McConnell has insisted that Democrats use the same cumbersome legislative process called reconciliation that they used to pass a $1.9 trillion COVID-19 relief bill and have been employing to try to pass Biden’s $3.5 trillion measure to boost safety net, health and environmental programs.
McConnell said in his offer Wednesday that Republicans would still insist that Democrats use the reconciliation process for a long-term debt limit extension. However, he said Republicans are willing to “assist in expediting” that process, and in the meantime Democrats may use the normal legislative process to pass a short-term debt limit extension with a fixed dollar amount to cover current spending levels into December.
While he continued to blame Democrats, his offer will also allow Republicans to avoid the condemnation they would have gotten from some quarters if a financial crisis were to occur.
Earlier Wednesday, Biden enlisted top business leaders to push for immediately suspending the debt limit, saying the approaching deadline created the risk of a historic default that would be like a “meteor” that could crush the economy and financial markets.
At a White House event, the president shamed Republican senators for threatening to filibuster any suspension of the $28.4 trillion cap on the government’s borrowing authority. He leaned into the credibility of corporate America — a group that has traditionally been aligned with the GOP on tax and regulatory issues — to drive home his point as the heads of Citi, JP Morgan Chase and Nasdaq gathered in person and virtually to say the debt limit must be lifted.
“It’s not right and it’s dangerous,” Biden said of the resistance by Senate Republicans.
His moves came amid talk that Democrats might try to change Senate filibuster rules to get around Republicans. But Sen. Joe Manchin, D-W.Va., reiterated his opposition to such a change Wednesday, likely taking it off the table for Democrats.
The business leaders echoed Biden’s points about needing to end the stalemate as soon as possible, though they sidestepped the partisan tensions in doing so. Each portrayed the debt limit as an avoidable crisis.
“We just can’t wait to the last minute to resolve this,” said Jane Fraser, CEO of the bank Citi. “We are, simply put, playing with fire right now, and our country has suffered so greatly over the last few years. The human and the economic cost of the pandemic has been wrenching, and we don’t need a catastrophe of our own making.”
Ahead of the White House meeting, the administration warned that if the borrowing limit isn’t extended, it could set off an international financial crisis the United States might not be able to manage.
“A default would send shock waves through global financial markets and would likely cause credit markets worldwide to freeze up and stock markets to plunge,” the White House Council of Economic Advisers said in a new report. “Employers around the world would likely have to begin laying off workers.”
The recession that could be triggered could be worse than the 2008 financial crisis because it would come as many nations are still struggling with the COVID-19 pandemic, the report said.
Once a routine matter, raising the debt limit has become politically treacherous over the past decade or more, used by Republicans, in particular, to rail against government spending and the rising debt load.
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Senate Republicans block bill that would avert government shutdown, avoid debt default
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Photo Credit: Lux Blue / Shutterstock
For many Americans, the federal government’s packages to stimulate the economy during the COVID-19 pandemic are notable for the direct relief they have offered to individual households, like stimulus checks and expanded unemployment benefits. But these bills have also brought unprecedented levels of federal investment into state and local governments.
One of the major features of the $1.9 trillion American Rescue Plan, passed in March of this year, was a $350 billion fund for states, territories, cities, counties, and tribal governments across the nation to supplement their own revenues. The package also included large pots of funding for areas like health, education, infrastructure, and others that are funded through state and local dollars. The American Rescue Plan followed the $2.2 trillion CARES Act from March 2020 and other pandemic relief packages that offered aid for similar purposes.
The aid provided to state and local governments in the COVID-19 stimulus bills was intended to ward off cutbacks to public services at a time when many observers feared that tax revenues would collapse as a result of the pandemic’s economic fallout. But while COVID-19 created additional urgency for federal support to states, the federal government has long played an important role in supporting state budgets.
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Photo Credit: Lux Blue / Shutterstock
For many Americans, the federal government’s packages to stimulate the economy during the COVID-19 pandemic are notable for the direct relief they have offered to individual households, like stimulus checks and expanded unemployment benefits. But these bills have also brought unprecedented levels of federal investment into state and local governments.
One of the major features of the $1.9 trillion American Rescue Plan, passed in March of this year, was a $350 billion fund for states, territories, cities, counties, and tribal governments across the nation to supplement their own revenues. The package also included large pots of funding for areas like health, education, infrastructure, and others that are funded through state and local dollars. The American Rescue Plan followed the $2.2 trillion CARES Act from March 2020 and other pandemic relief packages that offered aid for similar purposes.
The aid provided to state and local governments in the COVID-19 stimulus bills was intended to ward off cutbacks to public services at a time when many observers feared that tax revenues would collapse as a result of the pandemic’s economic fallout. But while COVID-19 created additional urgency for federal support to states, the federal government has long played an important role in supporting state budgets.
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Senate Republicans block bill that would avert government shutdown, avoid debt default
For most of the last two decades, federal funding has represented more than 20% of all state and local government revenue in the U.S., according to data from the U.S. Census Bureau. In nominal dollars, federal investment in the states is more than 2.5 times what it was at the start of the millennium, rising from $292 billion in 2000 to $762 billion in 2019. And as in the Great Recession, when federal investment increased dramatically both in dollars and as a share of state revenues due to the $787 billion stimulus plan under Obama, these same figures are likely to spike again when the pandemic stimulus packages are taken into account for 2020 and 2021.
Open-ended grants to states like the $350 billion fund in the American Rescue Plan are rare, and instead, federal dollars flowing to the states typically fund particular programs, like Medicaid or income assistance, or to grants that can only fund certain priorities, like transportation, education, or economic development. These dollars are usually meant to supplement state funds, particularly in states with fewer economic resources (and as a result, lower tax revenues) or larger groups of people who qualify for public assistance programs.
For most of the last two decades, federal funding has represented more than 20% of all state and local government revenue in the U.S., according to data from the U.S. Census Bureau. In nominal dollars, federal investment in the states is more than 2.5 times what it was at the start of the millennium, rising from $292 billion in 2000 to $762 billion in 2019. And as in the Great Recession, when federal investment increased dramatically both in dollars and as a share of state revenues due to the $787 billion stimulus plan under Obama, these same figures are likely to spike again when the pandemic stimulus packages are taken into account for 2020 and 2021.
Open-ended grants to states like the $350 billion fund in the American Rescue Plan are rare, and instead, federal dollars flowing to the states typically fund particular programs, like Medicaid or income assistance, or to grants that can only fund certain priorities, like transportation, education, or economic development. These dollars are usually meant to supplement state funds, particularly in states with fewer economic resources (and as a result, lower tax revenues) or larger groups of people who qualify for public assistance programs.
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Senate Republicans block bill that would avert government shutdown, avoid debt default
Because federal funding is structured in this way, some states are more heavily dependent on federal dollars than others. Pre-pandemic, eight states took in more than 30% of their revenues from federal dollars. Southern states like Louisiana, Kentucky, and Mississippi, which have some of the largest numbers of people living in poverty and qualifying for various federal aid programs, are among the most dependent on federal funding. Some rural states with small populations, like Montana and Alaska, have a limited tax base that makes federal support more important to their budgets. And along those lines, another important factor in reliance on federal aid is a state’s political leanings: more conservative states tend to have lower taxes and levels of public spending, which means they may fund a greater proportion of their budgets with federal money.
To determine the states most dependent on federal aid, researchers at Commodity.com calculated federal funding as a share of total state and local government revenue using the most recent data available from the U.S. Census Bureau’s 2019 Annual Survey of State and Local Government Finances. In the event of a tie, the state with more federal funding per person was ranked higher.
Here are the states most dependent on federal aid.
Because federal funding is structured in this way, some states are more heavily dependent on federal dollars than others. Pre-pandemic, eight states took in more than 30% of their revenues from federal dollars. Southern states like Louisiana, Kentucky, and Mississippi, which have some of the largest numbers of people living in poverty and qualifying for various federal aid programs, are among the most dependent on federal funding. Some rural states with small populations, like Montana and Alaska, have a limited tax base that makes federal support more important to their budgets. And along those lines, another important factor in reliance on federal aid is a state’s political leanings: more conservative states tend to have lower taxes and levels of public spending, which means they may fund a greater proportion of their budgets with federal money.
To determine the states most dependent on federal aid, researchers at Commodity.com calculated federal funding as a share of total state and local government revenue using the most recent data available from the U.S. Census Bureau’s 2019 Annual Survey of State and Local Government Finances. In the event of a tie, the state with more federal funding per person was ranked higher.
Here are the states most dependent on federal aid.
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Senate Republicans block bill that would avert government shutdown, avoid debt default
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Photo Credit: Sean Pavone / Shutterstock
- Federal funding as a share of total state revenue: 25.6%
- Federal funding per capita: $2,359
- Total federal funding: $15,931,783,000
- Total state revenue: $62,345,742,000
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Photo Credit: Sean Pavone / Shutterstock
- Federal funding as a share of total state revenue: 25.6%
- Federal funding per capita: $2,359
- Total federal funding: $15,931,783,000
- Total state revenue: $62,345,742,000
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Senate Republicans block bill that would avert government shutdown, avoid debt default
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Photo Credit: Henryk Sadura / Shutterstock
- Federal funding as a share of total state revenue: 25.6%
- Federal funding per capita: $2,425
- Total federal funding: $24,171,800,000
- Total state revenue: $94,423,525,000
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Photo Credit: Henryk Sadura / Shutterstock
- Federal funding as a share of total state revenue: 25.6%
- Federal funding per capita: $2,425
- Total federal funding: $24,171,800,000
- Total state revenue: $94,423,525,000
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Senate Republicans block bill that would avert government shutdown, avoid debt default
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Photo Credit: Mihai_Andritoiu / Shutterstock
- Federal funding as a share of total state revenue: 25.7%
- Federal funding per capita: $1,842
- Total federal funding: $12,687,675,000
- Total state revenue: $49,301,966,000
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Photo Credit: Mihai_Andritoiu / Shutterstock
- Federal funding as a share of total state revenue: 25.7%
- Federal funding per capita: $1,842
- Total federal funding: $12,687,675,000
- Total state revenue: $49,301,966,000
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Senate Republicans block bill that would avert government shutdown, avoid debt default
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Photo Credit: Sean Pavone / Shutterstock
- Federal funding as a share of total state revenue: 27.2%
- Federal funding per capita: $3,342
- Total federal funding: $2,083,514,000
- Total state revenue: $7,665,670,000
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Photo Credit: Sean Pavone / Shutterstock
- Federal funding as a share of total state revenue: 27.2%
- Federal funding per capita: $3,342
- Total federal funding: $2,083,514,000
- Total state revenue: $7,665,670,000
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Senate Republicans block bill that would avert government shutdown, avoid debt default
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Photo Credit: Real Window Creative / Shutterstock
- Federal funding as a share of total state revenue: 27.7%
- Federal funding per capita: $4,163
- Total federal funding: $2,423,952,000
- Total state revenue: $8,765,832,000
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Photo Credit: Real Window Creative / Shutterstock
- Federal funding as a share of total state revenue: 27.7%
- Federal funding per capita: $4,163
- Total federal funding: $2,423,952,000
- Total state revenue: $8,765,832,000
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Senate Republicans block bill that would avert government shutdown, avoid debt default
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Photo Credit: Sean Pavone / Shutterstock
- Federal funding as a share of total state revenue: 27.9%
- Federal funding per capita: $2,489
- Total federal funding: $12,251,463,000
- Total state revenue: $43,860,663,000
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Photo Credit: Sean Pavone / Shutterstock
- Federal funding as a share of total state revenue: 27.9%
- Federal funding per capita: $2,489
- Total federal funding: $12,251,463,000
- Total state revenue: $43,860,663,000
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Senate Republicans block bill that would avert government shutdown, avoid debt default
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Photo Credit: Mark Skalny / Shutterstock
- Federal funding as a share of total state revenue: 29.7%
- Federal funding per capita: $2,365
- Total federal funding: $17,553,381,000
- Total state revenue: $59,016,577,000
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Photo Credit: Mark Skalny / Shutterstock
- Federal funding as a share of total state revenue: 29.7%
- Federal funding per capita: $2,365
- Total federal funding: $17,553,381,000
- Total state revenue: $59,016,577,000
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Senate Republicans block bill that would avert government shutdown, avoid debt default
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Photo Credit: Sean Pavone / Shutterstock
- Federal funding as a share of total state revenue: 30.2%
- Federal funding per capita: $3,663
- Total federal funding: $7,715,923,000
- Total state revenue: $25,517,327,000
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Photo Credit: Sean Pavone / Shutterstock
- Federal funding as a share of total state revenue: 30.2%
- Federal funding per capita: $3,663
- Total federal funding: $7,715,923,000
- Total state revenue: $25,517,327,000
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Senate Republicans block bill that would avert government shutdown, avoid debt default
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Photo Credit: Sean Pavone / Shutterstock
- Federal funding as a share of total state revenue: 30.3%
- Federal funding per capita: $2,694
- Total federal funding: $8,165,669,000
- Total state revenue: $26,989,530,000
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Photo Credit: Sean Pavone / Shutterstock
- Federal funding as a share of total state revenue: 30.3%
- Federal funding per capita: $2,694
- Total federal funding: $8,165,669,000
- Total state revenue: $26,989,530,000
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Senate Republicans block bill that would avert government shutdown, avoid debt default
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Photo Credit: Sean Pavone / Shutterstock
- Federal funding as a share of total state revenue: 30.4%
- Federal funding per capita: $2,966
- Total federal funding: $5,292,991,000
- Total state revenue: $17,438,498,000
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Photo Credit: Sean Pavone / Shutterstock
- Federal funding as a share of total state revenue: 30.4%
- Federal funding per capita: $2,966
- Total federal funding: $5,292,991,000
- Total state revenue: $17,438,498,000
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Senate Republicans block bill that would avert government shutdown, avoid debt default
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Photo Credit: Sean Pavone / Shutterstock
- Federal funding as a share of total state revenue: 31.4%
- Federal funding per capita: $2,941
- Total federal funding: $8,726,251,000
- Total state revenue: $27,796,883,000
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Photo Credit: Sean Pavone / Shutterstock
- Federal funding as a share of total state revenue: 31.4%
- Federal funding per capita: $2,941
- Total federal funding: $8,726,251,000
- Total state revenue: $27,796,883,000
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Senate Republicans block bill that would avert government shutdown, avoid debt default
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Photo Credit: Sean Pavone / Shutterstock
- Federal funding as a share of total state revenue: 31.8%
- Federal funding per capita: $2,854
- Total federal funding: $12,780,283,000
- Total state revenue: $40,238,628,000
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Photo Credit: Sean Pavone / Shutterstock
- Federal funding as a share of total state revenue: 31.8%
- Federal funding per capita: $2,854
- Total federal funding: $12,780,283,000
- Total state revenue: $40,238,628,000
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Senate Republicans block bill that would avert government shutdown, avoid debt default
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Photo Credit: Felix Mizioznikov / Shutterstock
- Federal funding as a share of total state revenue: 32.3%
- Federal funding per capita: $3,146
- Total federal funding: $14,616,011,000
- Total state revenue: $45,271,357,000
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Photo Credit: Felix Mizioznikov / Shutterstock
- Federal funding as a share of total state revenue: 32.3%
- Federal funding per capita: $3,146
- Total federal funding: $14,616,011,000
- Total state revenue: $45,271,357,000
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Senate Republicans block bill that would avert government shutdown, avoid debt default
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Photo Credit: Marcus Biastock / Shutterstock
- Federal funding as a share of total state revenue: 32.7%
- Federal funding per capita: $5,420
- Total federal funding: $3,963,195,000
- Total state revenue: $12,106,780,000
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Photo Credit: Marcus Biastock / Shutterstock
- Federal funding as a share of total state revenue: 32.7%
- Federal funding per capita: $5,420
- Total federal funding: $3,963,195,000
- Total state revenue: $12,106,780,000
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Senate Republicans block bill that would avert government shutdown, avoid debt default
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Photo Credit: Mihai_Andritoiu / Shutterstock
- Federal funding as a share of total state revenue: 34.0%
- Federal funding per capita: $3,219
- Total federal funding: $3,477,855,000
- Total state revenue: $10,222,926,000
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Photo Credit: Mihai_Andritoiu / Shutterstock
- Federal funding as a share of total state revenue: 34.0%
- Federal funding per capita: $3,219
- Total federal funding: $3,477,855,000
- Total state revenue: $10,222,926,000
