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July 17 (Bloomberg) -- U.S. governors from both major parties circulated a letter at their national meeting urging Congress to raise the federal debt ceiling rather than put the nation’s credit -- and their own states -- at risk.
The bipartisan letter was being drafted by the National Governors Association’s staff after Moody’s Investors Service warned that state bond ratings would be damaged by a U.S. default, Maryland Governor Martin O’Malley said yesterday.
“I’m hoping that we may be able to provide some welcome relief to the debilitating partisanship that is threatening to drive our country into default for no good reason,” said O’Malley, the chairman of the Democratic Governors Association.
President Barack Obama and Republicans in Congress are at an impasse over raising the legal debt ceiling. Unless it is lifted, the U.S. will reach the limit of its borrowing authority and begin to default on Aug. 2, according to the Treasury Department.
“They just started talking about it,” Wisconsin Governor Scott Walker said in an interview when asked about the letter.
“I do believe they need to reach an agreement” on the debt limit, Walker, a Republican, said of Obama and congressional leaders. “Longer-term, they need to do in Washington what we have done in our state -- balance the budget.”
Walker said the letter was circulated by Washington Governor Christine Gregoire, a Democrat who is the chair of the governors, and by Nebraska Governor Dave Heineman, a Republican who is scheduled to succeed her as the organization’s leader.
Neither Gregoire or Heineman were available for immediate comment. Krista Zaharias, a spokeswoman for the NGA, said she wasn’t able to confirm the letter’s existence. Jen Rae Hein, a spokeswoman for Heineman, declined to comment.
Colorado Governor John Hickenlooper, a Democrat, said he was told that the letter was a “fairly moderate” document aimed at gaining bipartisan support. He said he hadn’t seen it and couldn’t say whether he would sign.
Hickenlooper said he supports lifting the debt ceiling.
“The notion that you can walk up to the end of a precipice and ignore the risk you could lose your footing is foolhardy,” he said of the impasse in Washington. Not lifting the debt limit would “exacerbate every other fiscal issue we have,” he said.
Arizona Governor Jan Brewer, a Republican who is a frequent critic of the Obama administration, said partisanship should be set aside to avoid a U.S. default.
‘Slash and Burn’
“It is much easier to say, ‘Just slash and burn,’ but you can’t do that because it would turn our country upside down,” Brewer said in an interview. “It would be absolutely devastating. We have to take a position that is reasonable and productive in the long run to save this great country of ours. We have to do it.”
Matthew Benson, a spokesman for the governor, said Brewer hadn’t seen the letter.
“Do your responsibility, get this done, settle the markets, get as long a deal as is politically palatable with the parties that are at the table and let’s move on to ultimately more important issues,” Missouri Governor Jay Nixon, a Democrat, said in an interview.
“They’re going to get a deal,” Nixon predicted.
Rhode Island Governor Lincoln Chafee, an Independent, was less optimistic.
“I anticipate continued chilling of the economy as a result of inaction in Washington,” Chafee said in an interview. “There’s just such a lack of confidence in our political leadership in Washington, which is going to affect the national economy.”
Aaa Credit Rating
Should the U.S. government lose its top Aaa credit rating following a default, at least 7,000 top-rated municipal credits would have their ratings cut, Moody’s said in a report last week. Top-rated securities with no direct links to the national government would also be reviewed for similar action, the New York-based company said.
An “automatic” downgrade affecting $130 billion in municipal debt directly linked to the U.S. would follow any reduction in the federal level, Moody’s said.
U.S. states “are in a fragile state of recovery” and “can ill-afford” the effects of a default, Gregoire said on July 15.
“It’s time to put this issue behind us and get on with the issue confronting every American, which is, ‘Do I have a job and will I have a job tomorrow,’” Gregoire said in a press conference.
Top muni-bond news: TOPM <GO> Most read muni-bond stories: TNI MUN READ <GO> State fundamentals: MIFA <GO> For financial information on municipal issuers: SMUN <GO>
--With assistance from William Glasgall in Salt Lake City. Editors: Pete Young, William Glasgall
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