R.I. is bracing for a potential federal default

President Joe Biden met with House Speaker Kevin McCarthy in the Oval Office on Monday to discuss raising the national debt ceiling.Demetrius Freeman/The Washington Post

What would happen in Rhode Island if the debt ceiling crisis isn’t resolved and the federal government defaults? State officials are trying to find out, and making preparations for the worst.

On Friday, state Office of Management and Budget Director Brian Daniels asked cabinet directors, agency heads, and CFOs to provide a memo assessing the risks of default.

”Billions of dollars in federal aid and state-run (but federally funded) agency functions could be halted nationwide,” Daniels said in his request. “Note that, unlike prior government shutdowns, a debt default could result in a cessation of essential federal government functions and programs.”

Daniels is requesting a high-level view of how “a complete lapse in federal funding will impact agency operations, personnel, and programmatic risk.”

Why it matters: The preparations are a sign of concern here in Rhode Island as the federal government in Washington approaches a deadline as early as June 1 for not being able to pay all its bills. It also underscores the real-world stakes of the impasse, which could rattle financial markets and, according to members of Rhode Island’s congressional delegation, put benefits like Social Security at risk.

Olivia DaRocha, press secretary for Democratic Governor Dan McKee, said a federal default would make a recession a near certainty.

”The Governor is hopeful that Congress will act but he’s asked his Office of Management and Budget to make contingency plans should the Republican led House of Representatives force the United States to default on its debt,” DaRocha said in an e-mail.

According to media reports out of Washington, President Joe Biden and House Speaker Kevin McCarthy projected optimism after meeting Monday, but didn’t come to an agreement. (“It should have happened months ago, but there is a path for him to avoid defaulting on the debt,” McCarthy said of Biden.)

Meanwhile, US Senators Jack Reed and Sheldon Whitehouse signed a letter Thursday asking Biden to prepare for invoking the 14th Amendment. Treasury Secretary Janet Yellen has called that “legally questionable.”

This story first appeared in Rhode Map, our free newsletter about Rhode Island that also contains information about local events, links to interesting stories, and more. If you’d like to receive it via e-mail Monday through Friday, you can sign up here.