National default would slow down local economy

July 28, 2011 3:36:36 PM PDT
The national debate over how to pay the United State's bills weighs heavy on the future of Illinois, which is also facing a multibillion dollar crisis of its own.

A national default would slow or stop payments to Illinois providers and military service personnel.

"The first thing we need to do is we need to protect the American economy, we don't want to aggravate matters and go back into recession," Illinois Governor Pat Quinn said.

Governor Quinn said he spoke with other governors and the White House this week to urge resolution to the federal debt crisis and prevent negative ramifications for states - like cuts or delays for healthcare.

"Medicaid program is a 50/50 program between state and federal government and if the federal government can't pay its half, it's gonna cause great travail," Gov. Quinn said.

"I believe there will be some delays if a deal is not struck toward the transfers to the state so we will probably see a slowdown in payments," Adolfo Laurenti said. Laurenti is the deputy chief economist for Mesirow Financial. He expects the states will eventually get federal funds -- if there's no resolution. Adolfo Laurenti says his bigger concern is the impact on individuals as families are also looking for economic recovery.

"Higher interest rates for credit card, mortgages, car loans, for personal loans will pinch the pockets of everyone," Laurenti said.

The Center for Tax and Budget Accountability is an Illinois economic think tank that estimates the state's budget shortfall to be $7 billion. The group supported raising the income tax. The center's director of policy analysis says cuts to services could worsen the economic recovery.

"The vast majority of economic data indicates that spending is a much larger multiplier, creates much more jobs then tax cuts," said Ron Baiman, Center for Tax and Budget Accountability.

Governor Quinn also cited the need for regular inspections of the state's 11 nuclear power plants. He says those are federal inspections.

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