As a congressional standoff over raising the nation’s debt ceiling continues and with just one week until Treasury officials estimate the federal government will run out of money, Mayor Steve Noble expressed confidence that Kingston’ strong financial position would see the city though a potential fiscal crisis. Meanwhile, municipal finance experts say most state and local governments will not suffer an immediate catastrophic impact from a federal debt default.

On Thursday, the last day before Congress is set to recess for the long holiday weekend, President Joe Biden and House Republicans remained at the negotiating table. Republicans are demanding spending caps that would force deep cuts in social programs, education and other government services. Biden meanwhile has called for a “no strings attached” vote to raise the nation’s borrowing limit. Treasury officials estimate that the Federal government will have to stop paying some credit obligations as early as June 1.

In Kingston, Noble said, he and longtime city Comptroller John Tuey were “actively monitoring the situation” and following guidance from the New York State Government Finance Officers Association. In an email to Kingston Wire, Noble suggested that his previous work with Tuey and the Common Council to bolster the city’s finances has left Kingston well-positioned in the event of a debt default by the federal government. Steady increases in sale tax revenue in recent years have left the city with robust cash reserves, while the city’s debt obligations have been reduced by the purchase of short shelf-life items, like police vehicles, with cash instead of borrowing through bonding. The city’s strong AA- rating from Moody’s — the fourth highest on the bond rating company’s 24-grade scale — has also reduced the cost of bonding.

“The effects of a default on our financial markets and the federal treasury are truly unknown as it has never happened before. However, during the last eight years, I have worked with our comptroller and Common Council to be prepared to weather any storm,” said Noble, who blamed House Republicans for the debt crisis. “We are currently taking guidance from the New York State Government Finance Officers' Association, and I am confident we will get through this.”

Emily Brock, head of the Federal Liaison Center for the Government Finance Officers Association, which represents finance officers across the U.S and Canada, said municipalities that are on a solid financial footing should not see major short term impacts from a national debt default. Brock added that each state and municipality stood as its own “sovereign” for the purposes of credit analysis, meaning that communities with strong bond ratings — which are based on a projection of the borrower’s ability to repay long-term debt obligations — should maintain them even if the federal government’s bond rating takes a hit.

“Just because the United States [bond rating] gets downgraded doesn’t mean the state of Wisconsin gets downgraded,” said Brock.

Brock said the most immediate impacts of a national debt default would hit municipalities heavily dependent on federal spending, like towns with military bases. Additionally, most federal grants, including Kingston’s $17.1 million allocation of pandemic relief funds, operate on a reimbursement basis where municipalities pay for grant-funded projects then get the money back. That process could be delayed if the federal government is unable to meet its financial obligations. Most cities, Brock said, have money invested in Treasury bonds and use a type of T-bond known as a State and Local Government Securities, or “Slugs,” to close out their own bonds when they come to maturity. “The Slug window is closed, municipalities don’t have access to that market and it won’t be open again [until the debt ceiling crisis is resolved].”

Brock said her organization is advising members to review their investment portfolios, cash out T-bills and look carefully at escrow accounts and upcoming bond obligations. Brock added that the association urges municipal finance officials to sit down with their credit analyst to discuss any potential vulnerabilities.

“Communities that take a strong, disciplined approach to municipal finance should be in a good position to deal with whatever comes next,” said Brock.