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Federal Default Would Hit The District Especially Hard

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Federal employees, like many of the ones that attend lunchtime concerts at the Woodrow Wilson Plaza, are worried that a government default will result in furloughs.
Elvert Barnes (http://www.flickr.com/photos/perspective/5965152223/)
Federal employees, like many of the ones that attend lunchtime concerts at the Woodrow Wilson Plaza, are worried that a government default will result in furloughs.

"With its outdoor concert series, the Woodrow Wilson Plaza has become a popular spot for federal workers and contractors to gather on their lunch breaks.

But even with a Lynyrd Skynyrd cover band cranking out tunes, the mood for many on Wednesday was anything but rockin'. Eleanor Graham, who works for a federal government contractor, isn't optimistic.

"We just had a staff meeting this morning, and people want to know we should prepare ourselves to go on furlough," she says. "What kind of plans have they made for us... because no one is going to receive a salary if they don't come together."

Less than a block away from the plaza, in the bowels of the Wilson Building, D.C.'s Chief Financial Officer Natwar Gandhi painted a bleak picture for the District if the US government defaults.

"It would have immense effect on the financial market," he says. "First, we receive $2 billion a year from the federal government: that would be Medicaid, grants, the road projects -- that would be affected."

Also, Gandhi says the city's commercial real estate market -- considered the hottest in the country -- would take a hit from the higher interest rates.

"Commercial real property taxes are engines of our revenue machines, and that would be affected," he says.

Finally, D.C.'s ability to borrow short-term cash from Wall Street would be in serious jeopardy," Gandhi adds.

All told, a default would create a serious cash-flow problem for the District, and possibly bring about the District's return to being run by a federally-appointed Control Board, warns the District's CFO.

"Because all of the conditions that trigger the Control Board are so-called cash conditions," he says. "If we fail to meet our Metro payments, if we fail to meet our payroll, all of that would be hampered."

A shift to control board authority could mean lawmakers on Capitol Hill -- the source of the debt-ceiling standoff -- would take control of the District government as well.

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