By Larry Jones
August 1, 2011

Center for American Progress President and Chief Executive Officer John Podesta spoke to mayors about the status of the negotiations underway in Washington (DC) to raise the nation’s debt ceiling and its related impact on creating jobs. A former White House chief of staff under President Clinton, Podesta told mayors that no agreement has been reached between the White House and Congressional leaders on increasing the nation’s $14.3 trillion limit on borrowing. If no agreement is reached by the August 2 deadline, he said former President Ronald Reagan was right when he said years ago that failure to increase the nation’s debt limit would have dire consequences that are impossible to predict.

He went on to explain that we are in unchartered territory since the nation has never defaulted on its financial obligations and has always enjoyed a triple A credit rating. As a result, the federal government has always been able to borrow money at the lowest interest rate. But all that could change if a compromise is not reached soon. Mayors were reminded that credit rating agencies like Moody’s and Standard and Poors are already considering downgrading the nation’s credit rating, which undoubtedly will drive up the interest rates on federal, state and local, and personal borrowing.

Podesta said this would have a ripple effect on home mortgages, credit cards, auto loans, pension benefits and student loans. He further explained that the borrowing cost on municipal bonds would be increased, the federal government would be forced to make even deeper spending cuts on programs, and more jobs would be lost nation-wide.

He explained that while the President and Congress must grapple with the nation’s debt, it should be done in a smart way to promote economic recovery and job creation. While there is no question that spending must be reduced, he said the federal government must continue to invest in programs that spur jobs growth. These include investments in advanced technology, education, clean energy, communications and transportation programs like America Fast Forward.

Mayors were told three key plans are under consideration: the Gang of Six Bipartisan plan, the Obama-Boehner plan and the McConnell-Reid plan. He said the Gang of Six plan “is the best of the ideas on the table.” It would save about $4 trillion over the next decade and it includes a balance of spending cuts and revenue increases, and it protects the most vulnerable. Although the Gang of Six Plan has bipartisan support in the Senate, he said it is still unclear if it has enough support to pass the Senate and there is very little chance of it passing in the House.

The Obama-Boehner plan calls for about $3 trillion increase in the debt limit, which would be offset by $1.5 trillion in domestic spending cuts and $1.5 trillion in savings from reforms in entitlement programs, and closing tax loopholes and other tax reforms. Disagreement over revenues caused the Speaker to break off any further talks with the President and Podesta said it is unlikely this plan will gain the support it needs to move forward.

The McConnell-Reid plan proposes to give members a way of raising the debt ceiling now to get us beyond current crisis. The plan puts off the tough decision on a long-term debt and deficit reduction plan until after the election. It would cut about $1.5 trillion in spending over the next ten years while granting the President authority to recommend future spending cuts as a condition to raising the debt ceiling. While this plan doesn’t seem to have a lot of support just now, Podesta said the White House and Congressional leaders may need to turn to it or some modified version of it in the end if Republican leaders in the House and Democratic leaders in the Senate fail to come together on a plan that can clear both chambers.