At the end of 2012, the United States ran out of its authorized borrowing capacity. Next month, the nation’s daily bills will total more than its daily revenue.

In layman’s terms, we’ve maxed out our credit cards and are living beyond our means. Thank goodness we have Congress to sort this out. As lawmakers in Washington, D.C., wrangle over whether to allow the government to boost its debt limit and how to trim the budget so the country doesn’t have to borrow even more money, we asked some of Iowa’s business and industry leaders to tell us how the debt ceiling crisis is likely to affect their industry and Iowans in general.



Government

David Vaudt,
Iowa state auditor and member of The Campaign Fix the Debt

Iowa is a model for our country to follow on the issue of fiscal responsibility. Just two years ago, Iowa was spending nearly $800 million more than we could cover with the ongoing revenues coming in the door. Today, our leaders have nearly closed that gap by following my simple rule — don’t spend more than you take in. The key to Iowa’s dramatic financial turnaround has been spending restraint in the face of increased revenues.

Like Iowa, the federal government should work toward the goal of not spending more than the ongoing revenues it takes in. While the deal passed on Jan. 1 averted the fiscal cliff, it was a squandered opportunity because it doesn’t come close to solving our nation’s fiscal problems. We must stop bouncing from one immediate crisis to the next and instead develop a comprehensive, long-term solution.

A sustainable plan must include measures to (1) reform our entitlement programs in meaningful ways so they are solvent for our children and grandchildren, (2) implement spending cuts in a careful manner by looking at the effectiveness and efficiency of all government programs, and (3) reform our complex tax code in a comprehensive manner by creating a tax policy that is fairer to all taxpayers.

The next obstacle we face is our federal debt limit or debt ceiling. This limit will have to be raised to avoid a default. However, continually raising the debt limit — without solving the underlying issues — simply moves us closer to the day we dig ourselves into a hole too deep to climb back out. After the debt limit, we face the March deadline for the automatic across-the-board spending cuts to many federal government programs which, without corrective action, will have devastating results.


Todd Ashby,
Executive director, Des Moines Area Metropolitan Planning Organization

In general, most of the transportation funding programs would be exempt from the possible sequestration cuts, since the majority of these funds are derived from Highway Trust Fund and the Airport and Airway Trust Fund via user fees. Sequestration cuts would hit programs paid for out of the general fund. Most of transportation programs would be able to continue if the debt ceiling isn’t raised for the same reason; the trust funds are user-fee-driven. However, transportation programs that are not funded by one of the trust funds could experience delays or stoppages. Here is a list of specific programs that would or would not be affected if Congress does not raise the debt ceiling and proceeds with sequestration cuts:

Aviation: The Airport Improvement Program would be exempt. Essential Air Service funding for air service at smaller airports would be cut.

Highway: Programs funded via the Highway Trust Fund would be exempt, but FHWA (Federal Highway Administration) Emergency Relief funds (used for things like flooding repairs after a weather event) would be cut. Also, sequestration would apply to any general fund transfers to the trust fund, thereby draining the Highway Trust Fund more quickly than anticipated.

Rail: Amtrak subsidies would be subject to cuts, as would research and development funding, which could possibly impact development of passenger rail service through Des Moines.

Public transit: Most programs would be exempt, since they come from the Highway Trust Fund. Some general-fund programs could face cuts.

Infrastructure: Discretionary infrastructure investment would be subject to the cuts, since it is funded with general fund dollars.


Rick Clark,
Des Moines city manager

If the debt ceiling is not addressed, then federal bills could not be paid and federal funds for a variety of local needs would not be provided. Housing assistance, community development, infrastructure dollars could be impacted. Processing of payments, regulatory functions, would be impacted too.


Chamber of Commerce

Jennifer Chittenden,
executive director, Des Moines Downtown Chamber and Des Moines West Side Chamber of Commerce

Any delay in Congress’ decision to balance our budget affects our chamber members. Uncertainty can damage business because it delays businesses from hiring, growing, and forecasting future inventorylevels.


Finance and insurance

Lance Gunkel
CEO, Sherpa Investment Management

Congress “playing chicken” with the debt ceiling does not bring any comfort to the debt market and investors. If Treasury investors believe that default is an option that Congress is willing to accept, this will cause increased volatility, as well as higher interest rates. The higher interest rates on Treasury securities will be demanded by the market to compensate for the risk of default.

Even if the debt ceiling is raised – permanently or temporarily – the market likely wants to see steps made toward resolving the U.S. government fiscal situation. In reality this will require both spending cuts and tax increases, regardless of what the parties are saying.

A reasonable plan will see the U.S. put steps in place (a pairing of tax increases and spending cuts) that will bring about a balanced budget within seven years. Anything less than this is not fast enough. However, if it occurs too quickly, it will cause a dampening of growth and gross domestic product.


Dennis Markway 
Fee-only financial planner, Iron Horse Wealth Management LLC

From the perspective of comprehensive financial planning, failure to make necessary reforms impacts all of the variables for planning for your financial future – from the proposed income from Social Security to the cost of Medicare for your family. It impacts the interest rates you pay to the growth on your portfolio. It impacts the cost of the benefits your employer offers to the hiring they elect to defer or accelerate. From your taxes to the value of your home to the price of food at your grocery store to the legacy you wanted to leave for your family or to charity.

Our elected leaders will eventually agree to raise the debt ceiling, even if they will wait until the 11th hour to do so. That being said, as with any client who has misused their credit, there is still a bill that needs to be repaid and adjustments made to both income and expenditures to work your way through those bills. Whether you are red or blue, those adjustments need to be made in a fair and balanced way to make sure the law of unintended consequences does not profoundly harm our citizens.


Jim Brannen
CEO, FBL Financial Group Inc.

I expect Congress to increase the debt ceiling, although there likely will again be much political wrangling. Consumers have become desensitized to these issues, so I don’t expect any short-term impact to our business or the insurance industry. The bigger issue is around our government’s failure to get its fiscal house in order over the longer term, which could and likely would result in further downgrades to the U.S. government’s credit rating. The credit quality of the U.S. government impacts the substantial investment holdings of the insurance industry. Action needs to be taken around the issues of aging population and entitlement expense and reforms.

The good news is that the economy seems to be regaining some fundamental strength and should be able to endure some degree of fiscal headwind. There are many secular strengths right now, including agriculture and energy, which have been positive for our life and property-casualty insurance businesses.


Manufacturing

Mark Wyzgowski
partner-in-charge, CliftonLarsonAllen LLP


No one knows the type of impact the manufacturing industry will face down the road, but here’s what we do know right now. Economists predict that if the debt ceiling is not raised and the government is not allowed to pay its bills, it would have an approximate 7 percent impact on gross domestic product (GDP), which would equate to a $1 trillion decline in U.S. annual GDP in 2013. This would throw the country into recession, which would have a negative impact on the manufacturing industry, especially those with direct exposure to the federal government such as defense contractors.

The last-minute deal reached on the fiscal cliff should be viewed as a net positive. Absent a deal, the U.S. was virtually guaranteed to fall back into recession, according to the Congressional Budget Office. Looking forward, our best guess is that the new deal is likely to subtract around 0.5 percent from GDP output.

In periods of uncertainty, and while we wait for policy decisions to unfold, we recommend manufacturers concentrate on maintaining flexibility within their own operations to protect profitability and maintain working capital. Despite the current uncertainty, we believe well-managed enterprises will have significant opportunities in the coming years to grow or acquire poorly managed competitors.