Debt Default Could Be 'Catastrophic' for Towns, Area Leaders Say

As leaders in Washington wrestle with the looming national debt crisis, local leaders are bracing for the potential impact if an agreement isn't reached to increase the debt ceiling by Aug. 2.

Southington Economic Development Coordinator Louis A. Perillo III and Farmington Town Council Chairman Mike Clark expect a trickle-down effect on the local economy and government, but West Hartford Town Manager Ronald Van Winkle fears the effects could be much worse.

“U.S. government default would be catastrophic and it would not only be catastrophic at the local level, it would be catastrophic for the nation,” said Van Winkle, an economist.

The biggest effect local residents are likely to see will come in the way services are funded and on interest rates and bond ratings, said both Perillo and Clark, as the local towns would be expected to shoulder the burden of service costs or consider cuts.

Defaulting, or even an increase in the debt ceiling, could devalue the American dollar further and lead to inflation within the economy, Perillo said. For typical local residents, this might mean higher interest rates on credit cards and delays in payments to seniors.

Clark said he doesn’t see service cuts being made at this point as a result of the debt crisis — at least in the short term. The long-term effects that debt problems could have on the nation, however, remain to be seen and trying to predict what will happen is difficult, he said.

“It has ramifications that are really unforeseen,” said Clark, a candidate for Connecticut’s 5th Congressional District. “It’s kind of like asking ‘What’s behind door No. 2?’ and I don’t think anyone in this country, on either party, wants to see what’s behind door No. 2.”

Despite some of the challenges that could lie ahead, Perillo said he does not see the markets reacting as they did in 2008. In addition, he said, politicians with each party do not want the country to default.

“There are measures in place for the short term such as bridge loans, and I don’t see a default necessarily occurring,” Perillo said. “I think the politicians on both sides will come to an agreement and the markets have not had a dramatic impact. You don’t see the gyrations you did back in 2008, and that’s a good sign."