Talks are at a stalemate. Here’s how a US debt default could affect Sonoma County residents

U.S. Rep. Mike Thompson gets no shortage of feedback from his constituents, on just about every topic imaginable. Lately, some of those messages have related to America’s looming debt crisis. Just not as many as Thompson expected.

“The amount I’m hearing doesn’t correspond to what’s at stake,” said Thompson, a Democrat whose district includes all of Napa County and portions of five other counties, including Sonoma.

What’s at stake, Thompson and others say, is immense.

If Congress doesn’t reach an agreement to raise the federal debt ceiling or find some other solution to the current standoff by June 1, analysts say, it could result in global financial instability and rain another blow on the United States’ international standing. On the homefront, interest rates could skyrocket, while investment could dividends tank. And a long list of federally funded jobs, programs and services might be in jeopardy.

As of now, the precise impacts are unknown.

“You can run a bunch of numbers, you can analyze the impact, but the truth is, the ripple effects can be hard to calculate,” said Rep. Jared Huffman, a Democrat whose coastal district runs from San Pablo Bay to the Oregon border. “The U.S. dollar and its stability in full faith and credit is kind of the cornerstone of the global financial system. If we were to default on our debt for the first time in history, it would be uncharted territory.”

Since 1960, the U.S. has raised the debt ceiling 78 times. But in this new, deeply weird era of American politics, with a militant far-right faction pushing House Speaker Kevin McCarthy (a California Republican) to reject any concessions, all bets are off.

“I am concerned,” Huffman said. “More concerned than I am hopeful at this point. And that has changed. If you asked me a month ago, I would say for sure level heads will prevail. I’m not so confident now.”

If June 1 arrives with no resolution, the U.S. Treasury will likely run out of the cash it needs to pay its bills around June 8, according to a “debt limit scenario update” released by Moody’s Analytics earlier this month.

There are innumerable, branching possibilities both before and after that. But if the United States does indeed default, these are some of the people in our community who stand to suffer real consequences:

Older adults

Two of the largest and most fundamental federal entitlement programs are Social Security and Medicare. Both exist primarily to help retired Americans survive outside the workforce. Both could be disrupted by a default.

It’s a real issue in Sonoma County, where 21.1% of the population is 65 or older, according to data from the 2022 U.S. Census. That is well above the state average of 15.2%, and the national average of 16.8%. Marin (23.4%), Mendocino (23.7%) and Lake (23.1%) counties have even more older residents than Sonoma.

In December 2021, Sonoma County had 103,400 residents drawing Old-Age, Survivors and Disability Insurance — the technical name for the program that delivers most Social Security benefits. Total monthly benefits flowing to county residents at that time amounted to $173 million, according to the Social Security Administration.

No one is arguing that important spigot will go dry June 1, or even by July. But for people on a fixed income, the uncertainty weighs heavily.

That includes Sue Aiken. The 82-year-old Oakmont resident said she lives “very comfortably.” But she was the victim of a Ponzi scheme that was discovered in 2020, she said. When that happened, a monthly income stream went away and Aiken had to dip into reserves to make up the gap. She wouldn’t look forward to that occurring again with her monthly Social Security check.

“It’s just the concern of what happens, and how long would it go?” said Aiken, a retired career counselor. “Most people here (in Oakmont) have adequate money to take care of themselves for a while, but you never know. If someone gets quite ill — there are regular bills to be paid, mortgages.”

Aiken uses Medicare for some of her medical costs, she said, and she knows some of her neighbors are much more reliant on that federal assistance.

“We have people pushing 100,” Aiken said. “You worry about, if I live that long, can I afford to?”

The poor

Other well-established federal entitlements, like Medicaid and the Supplemental Nutrition Assistance Program, are income-based. Unemployment benefits, which also flow from Washington DC, are another vital means of staying afloat in times of economic hardship.

All could be on thin ice. And so could other services for low-income residents.

As Deputy County Administrator Peter Bruland noted, Sonoma County relies on “pass-through” federal grants to support many programs, most of them aimed at health care, housing and other strands in the safety net. The county’s Fiscal Year 2022-23 budget includes $264 million in federal funding, about one-eighth of the $2.1 billion in total expenditures.

“Because much of the funding is received as a reimbursement only after the county has incurred costs, more than $120 million has yet to be received for the current fiscal year,” Bruland wrote in an email.

Next fiscal year’s recommended budget calls for an additional $244 million in federal funding. A reduction in federal money would necessarily lead to cuts.

“Failure to receive some or all of this funding in a timely manner would have impacts on the County’s ability to render these services,” Bruland wrote.

If weeks of debt impasse become months and the economy spirals downward, there will likely be a growing number of Americans in need of assistance like the enhanced unemployment benefits and stimulus checks that arrived during the COVID-19 pandemic.

“But if the federal government doesn’t have the money to pay its existing bills, there’s no way it will be able to pay additional costs,” Adam Kamins, senior regional economist at Moody’s Analytics, told The Press Democrat. “You’re fighting with one hand behind your back.”

Veterans

Richard Jones did almost four full tours of U.S. Navy duty in Vietnam between 1962 and 1968. He believes he and other veterans fought for the right to decent care in their later years.

“What I’ve really got to say about it you wouldn’t be able to print in the newspaper,” said Jones, who will be 79 next week. “Why don’t these people take their own pay, not ours that we’ve paid for and earned? To me, it’s not right.”

A lot of former soldiers and sailors, especially Vietnam veterans, have struggled over the years with the trauma of that conflict and the alienation they felt upon their return to the States. Many get by on Supplemental Security Income, or SSI.

Jones receives SSI because of service-connected injuries. Together with Social Security, his assistance package is about $3,950 a month, he said.

“It’s a decent amount of money. And it’s tax-free,” Jones said. “But in this particular county and area, that’s like pennies. You look at food prices, fuel, rent or house payments. The checks help me pay for those. If they don’t come in, these people don’t get paid. Then I’m in arrears for everything. And thousands of veterans out here are in the same position.”

Jones works with fellow servicemen and women at VetConnect. He knows all too well what happens when veterans fall behind in their finances and can’t catch up.

“To lose your benefits long term,” he said, “you’re getting three hots and a cot at the Crowbar Hotel.”

Outdoor enthusiasts

The federal government not only has mighty financial coffers. It owns large swaths of publicly accessible land — including locally beloved places like Point Reyes National Seashore, Mendocino National Forest and Berryessa Snow Mountain National Monument in the Coast Ranges.

If the feds are slashing money, recreational sites could be in the crosshairs. But it isn’t clear how that would look. Would park rangers be furloughed? Access to sites limited? Improvement projects delayed? National Park Service representatives did not respond by deadline.

The National Forest Service did reply. They’re waiting to find out like the rest of us.

“It is a complicated issue that has never occurred before, and we are unable to predict the consequences to the Forest Service,” Wade Muehlhof of the agency’s press office wrote in an email. “At this time, it would be inappropriate to speculate on potential impacts.”

Coast Guard personnel

Could the U.S. Coast Guard’s base in Bodega Bay, or its training center near Petaluma, be affected by debt default? It’s not out of the question, but don’t expect enlisted men and women to suffer unduly.

“Our working assumption is that cuts to the size of the military, while not entirely off the table, are as close as any class of cuts could be,” Kamins said. “It’s so politically toxic, and it’s widely agreed to be dangerous.”

At the same time, if you’re a military-adjacent civilian, you have some reason to worry.

“Where the military is facing greater risk is in cuts to funding for federal contractors, or civilian workers who support a military base,” Kamins said. “If you provide goods and services for the government, you either won’t be paid on time, or you’ll face so much uncertainty it will force firms to pause expansion, and potentially downsize.”

Pretty much everyone else

Surprise! Even if you don’t fit into one of these categories, you could be significantly hurt by debt default.

“The rates on government bonds would have to go up,” Huffman said. “There would be all sorts of ripple effects on all sorts of lending: car loans, mortgage payments. And everybody will take a big hit to their investments and retirement portfolios. These are huge consequences. It’s why I’ve argued from the beginning that we shouldn’t have to negotiate like it’s some hostage crisis. We should pay our bills.”

Sonoma County might feel the impact more than most, for a couple reasons. One, paradoxically, is the area’s relative prosperity.

Median household income here from 2017-2021 was $91,607, according to the Census Bureau. That’s nearly a third better than the national average of $69,021. It stands to reason there are greater stock holdings here, so more to lose in a suddenly bumpy economy, Kamins said.

The second factor is the county’s reliance on tourism. Normally a huge strength, it could become a liability in the face of a lasting economic downturn.

“Any area that is tourism-dependent tends to experience more peaks and valleys,” Kamins said. “The unemployment rate in Sonoma County is generally lower than the national rate. When there’s a recession, it goes above the national rate and stays there. It’s what we saw during the Great Recession in 2008.”

Where is this all heading?

Despite the angst, no one is giving up. Moody’s Analytics in May assigned a 10% probability to a “breach” in funding. And if there is one, the company said, it would likely be short-lived — not a standoff of six weeks or more, which could result in cascading financial hardships.

Huffman said Democrats need just five Republicans to join his party in a “discharge petition,” a seldom-used strategy that would allow the House to raise the debt ceiling with a bare majority. Failing that, he wants President Joe Biden to use his powers under the 14th Amendment to do it without Congress. That move is even rarer, and would likely draw a legal challenge from the right.

“The president needs to draw a line, to say, ‘We’ll move this to a normal budget process. But we will not negotiate whether the U.S. doesn’t pay its debt,’” Huffman said. “He has the ability to do that with a signature.”

If none of that happens, and if both sides of the aisle wind up digging in for a prolonged siege, Kamins said, the result will be “an economic calamity.”

Of course, maybe it’s all posturing. We’ve been here, or somewhere within shouting distance of here, many times. The politicians have always found a way to get a deal done. Maybe they can again.

“I’m pretty sure they will,” said Richard Jones, the Navy veteran. “It’s a game they play. And I get tired of the game. Don’t threaten me, that don’t work good for me. I’ve been threatened by better people than that.”

You can reach Phil Barber at 707-521-5263 or phil.barber@pressdemocrat.com. On Twitter @Skinny_Post.