Planning for a federal debt crisis


Almost one-third of the state’s total budget comes from federal funding. With the federal government racking up an ever-increasing amount of debt, some wonder about the impact on Minnesota if Uncle Sam were to go bust.

Sponsored by Rep. Keith Downey (R-Edina), HF545 contemplates just that scenario. The bill would direct state agencies to do contingency planning in case a federal fiscal crisis impacts the state budget.

The House State Government Finance Committee laid the bill over. A vote could come as early as tomorrow. There is no Senate companion.

According to the U.S. Treasury Department, the United States’ total outstanding public debt stands at more than $14.3 trillion. For the current fiscal year, the Congressional Budget Office projects a deficit of $1.5 billion — 9.8 percent of gross domestic product.

Downey called the bill a “good, prudent planning step.” He said the federal government will likely begin shifting costs to states when it can no longer accumulate debt.

“The genesis for this bill is the fact that the federal government essentially is broke,” he said at a May 3 hearing.

Opponents argued the bill’s proponents are motivated by politics rather than prudence. Rep. Ryan Winkler (DFL-Golden Valley) said fears of the U.S. government defaulting on its debt are overblown, and that Downey’s bill is premised on a “partisan fantasy” about financial Armageddon.

“I think your bill should also consider things like asteroid collisions, nuclear war, extraterrestrial invasion, coup d’état… That’s, to me, the kind of scenarios your bill is anticipating,” Winkler said.

Others argued the threat is real. Rep. King Banaian (R-St. Cloud) said that by 2020, the national debt is projected to reach 90 percent of the GDP — a figure which some economists consider a “magic number” that can trigger a crisis.

Banaian said the government might choose to alleviate the debt by printing more money, which would trigger inflation — something he said would also impact the state.

To alleviate concerns about partisanship, Committee Chairman Morrie Lanning (R-Moorhead) suggested amending the bill’s language to remove references to “federal government insolvency” and inserting less controversial terms. Downey said he would confer with other committee members and propose alternative language.