"State and local governments have an extraordinary opportunity to be game-changers.".

• Position: FOR THE RECORD: DIANE SWONK - Interview

Diane Swonk, chief economist at Mesirow Financial in Chicago, is listed among the top economic forecasters in the nation annually and is regularly quoted in consumer and financial media. She addressed the opening session of NCSL's 2012 Legislative Summit.

State Legislatures: How confident are you that Congress will come to an agreement to avoid the so-called "fiscal cliff"?

Diane Swonk: I am confident we will avert the fiscal cliff. But the hesitation of dealing with it is going to cost the economy and likely keep growth below the 2 percent threshold well into the first quarter of 2013. I don't think you're going to see the payroll tax cuts and unemployment insurance extended, which will suppress growth. It's hard to assess the actual cost of the hesitation we're seeing. My own estimation is it will probably shave a half to a full percent off growth. That's the difference between an unemployment rate that's stable to rising and one that is falling. We have this potential, and to squander it to politics is just mind-boggling. It's the first time in my career that I've had to take into account political brinksmanship ahead of economic fundamentals.

SL: Why should struggling U.S. households be concerned about what's going on in Europe?

Swonk: Because it could throw us into another recession. We've already seen one financial crisis, and we don't need another. The contagion effect means that if Europe goes down, all bets are off. Although, ironically, the most recent CNBC poll of economists, of which I'm a part, rated the fiscal cliff a greater threat to the U.S. economy than Europe, which is extraordinary.

SL: How have state and local governments been affected by the recession?

Swonk: One of the things we usually see in a recovery is that state and local governments are some of the first to start adding jobs, hiring up, doing projects, doing infrastructure, as state revenues come back. But we've seen the exact opposite. One of the main reasons we have a subpar employment recovery is because of the pain state and local governments have had to endure, and the cutting they've had to go through.

SL: Can the states expect help from Washington?

Swonk: The federal government is going to be shifting more and more burden onto the state and local levels. Places that have already cut to the bone will have to start cutting to the limb and deciding which limb goes first. That's not acceptable to the American public, and it doesn't have to be. These are...