US cities with military bases risk economic damage in debt ceiling fight

In less than two weeks, the United States might stop making payments on its debt, endangering the economies of towns with sizable military presences.

In the event of a default, the federal government would be unable to pay all of its debts, including the salaries owed to employees and benefits due to Social Security recipients.

According to the Congressional Budget Office, about a sixth of government spending is allocated to national defence, of which a quarter is used to pay military personnel.

Cities with sizable military facilities could have severe consequences if the United States is unable to pay its national defence obligations.

These consequences could include missed payments, mounting debt, and a dramatic reduction in spending that would harm local businesses’ bottom lines.

These are middle-class families who frequently live paycheck to paycheck. If the payments to those families are delayed, they will be forced to make truly terrible decisions because they don’t have any additional money or savings.

The Treasury Department’s approach to debt servicing when it runs out of money is still unknown, as is the order of payments that it will prioritise.

According to a Brookings Institution estimate, those on government payrolls, such as military personnel, are unlikely to lose their jobs if a default continues, although their paychecks are likely to be delayed.

That might worsen the financial market turmoil that local economies are already experiencing before a default even becomes a possibility.

Delayed payments might have a significant impact on US cities with significant military bases, such San Diego, San Antonio, and El Paso, Texas.

Smaller areas that lack diversified economies and strongly depend on the military’s presence to stimulate activity could be even more affected.

According to Mayo, federal employees might find themselves unable to avoid using credit or drawing from their savings accounts to pay for regular expenses.

Additionally, they might “dramatically cut back” on luxuries like going out to eat or seeing films, which would be bad for nearby companies. If it continues for a while, those enterprises may be forced to lay off employees or perhaps fail.

One of the biggest joint bases run by the Defence Department is located in San Antonio and consists of the following four military facilities: Fort Sam Houston, Camp Bullis, Randolph Air Force Base, and Lackland Air Force Base.

According to Thomas Tunstall, an economist at the University of Texas at San Antonio, the region’s diverse economy won’t be sufficient to protect households from serious harm if payments to federal workers are postponed.

According to Thomas Fullerton, an economist at the University of Texas at El Paso, Fort Bliss and William Beaumont Army Medical Centre in the western Texas city of El Paso pay their military and civilian personnel more than $3.5 billion in wages and compensation each year.

Another large city with a sizable military presence is San Diego. It has one of the biggest naval bases in the nation as well as a thriving tourism industry.

According to data from the Bureau of Labour Statistics, the metropolitan region had more than 193,000 workers in the leisure and hospitality industries in the previous year.

According to Jeffrey Clemens, an economist at the University of California, San Diego, if payments to all employees on government payrolls are delayed, they may first reduce their leisure spending, which would put tourism enterprises in serious difficulties.

The local economy would be affected by any repercussions of late salaries and salary payments on the spending of those households on entertainment, dining out, technology purchases, and other consumer products, according to Clemens.

“I would certainly expect people’s summer vacation plans to be impacted if the federal government goes into default and there is to some extent a seizing up of economic activity everywhere, and places like San Diego that have a significant tourism sector will be adversely affected by that.”

Early this week, President Joe Biden and House Speaker Kevin McCarthy expressed confidence that negotiations would result in a successful increase of the debt ceiling as soon as this weekend. However, on Friday, a snag forced the suspension of those conversations.