These Cities Will Face Economic Fallout From U.S. Default

The U.S. is inching closer to a default as the June 1 deadline on the debt ceiling grows near, and cities with a large military presence could be the first to feel the economic fallout.

Less than two weeks before Treasury Secretary Janet Yellen's "hard deadline" for the country to raise the debt ceiling, negotiations between the White House and House Republicans remain in limbo. If a deal cannot be reached, the government will fail to reach its financial obligations, including the salaries it pays to federal workers.

Among those employees are military personnel, who make up one-quarter of the government's national defense spending. According to the Congressional Budget Office, the federal government spends one-sixth of its budget on national defense.

So, a default would hit cities with a large military presence particularly hard, delaying payments to personnel, which could further hurt local economies that heavily rely on the residents to drive economic activity.

"Default would have severe consequences for the economy, financial markets, and a vast range of government programs that the American people count on," a spokesperson for the Department of Defense told Newsweek in a statement.

"Because there is no precedent for a default, it is difficult to know the precise impacts on specific federal programs. But what's clear is that without the ability for the federal government to borrow funds, there is a very real potential that any government program or payment would be halted or severely delayed."

California, Texas and Virginia rank among the top three largest military states in the country, and their biggest military cities like San Diego, El Paso and Norfolk could face significant economic turmoil that would strain businesses in the area.

For example, in El Paso, more than $3.5 billion is paid out in wages to the military personnel at Fort Bliss and William Beaumont Army Medical Center, Thomas Fullerton, an economist at the University of Texas at El Paso, told CNN.

Smaller cities where military personnel make up a significant portion of the population could face even more economic pressure, since there are fewer non-government workers to offset those delayed salaries.

In Hinesville, Georgia, where Fort Stewart is located, military members and their families make up nearly 56 percent of the population, according to an analysis by Delaware-based financial news company 24/7 Wall St. It is the only metro area in the country where more than half the population is active-duty military service members.

There is also a high concentration of active-duty military service members in Jacksonville, North Carolina, where military members and their families account for nearly 42 percent of the population. The city's Camp Lejeune Marine Corps Base is home to the largest concentration of Marines and sailors in the world.

It's not only active-duty members that would be affected by a U.S. default. Among the bills that are due soon are $12 billion in veterans' benefits.

San Diego, for example, not only houses one of the largest naval bases in the country, but also is home to more than 240,000 veterans—more than 13 percent of the population.

According to the Thomas Jefferson School of Law, the city is the number one destination for veterans returning from Afghanistan and Iraq. More than 15,000 active-duty service members transition out of service in San Diego each year.

Veterans in San Diego also make up 13.5 percent of San Diego County business owners, so a default could be even more devastating to these individuals, whose businesses will be hurt by the lack of economic activity in the area all while their own benefits aren't being paid out on time.

Update 5/22/23, 12:36 p.m. ET: This story was updated with comment from the Department of Defense.