Deal to end national-debt fight is still unlikely to be good for state and local governments

The pending solution to the political crisis over the national debt "could also squeeze state and local governments that are already strapped for cash," Suzy Khimm writes on Ezra Klein's blog for The Washington Post, noting that Congress has its eyes on education and Medicaid, two functions "that make up the largest parts of most states’ budgets. In many cases, such cuts "will pass onto local governments," Frank Shaforth, director of the Center for State and Local Government Leadership at George Mason University, told Khimm.

"There’s already been an uptick of bankruptcy filings by cities, towns and rural districts across the country over the past two months, and there could be more if Washington follows through on its promise to slash spending as soon as possible," Klein reports. "Local governments will try to raise property taxes to raise revenue, which could be yet another drag on a housing market that’s yet to recover. Those who fail to meet their fiscal obligations could see their credit downgraded, making it even harder for them to borrow money to build basic local infrastructure, while both the president and the GOP have threatened to pull funds for state infrastructure. What was once an ideological abstraction — 'austerity' — will have very real effects on everyday life for average Americans." (Read more)

If the crisis is not resolved and there is a technical default or a partial government shutown, things would be even worse, as Stateline reported Friday and The Associated Press did today.

UPDATE, Aug. 1: The Washington Post has a handy chart showing what each political party wanted and what it got at the end of negotiations. And as usual, the Post's Ezra Klein has a sharp analysis.