The federal government’s debt ceiling agreement that drastically reduces domestic spending will likely pose major threats to state programs over the coming decade. And that’s just the least of the problems the hyper-partisan climate in Washington could soon cause states as yet another shutdown battle may loom.
Nearly 100 lawmakers, aides and corporate officials packed a room at the Henry B. Gonzalez Convention Center in San Antonio to learn what impact the debt ceiling agreement will have on states. The briefing came on the first business day after Standard & Poor’s downgraded the country’s credit rating and in the midst of a day of trading that left the Dow Jones Industrial Average with its worst one-day decline since the financial crisis of 2008.
The debt deal penned earlier this month will immediately reduce the debt by $917 billion through spending cuts to discretionary programs over the next decade. Then, a congressional panel will be charged with finding another $1.2 trillion to $1.5 trillion in savings over the same time period, through a combination of cuts or revenue increases. Programs like Medicaid and unemployment insurance will be exempt from that effort. If the panel can’t find a solution, the cuts will come automatically and be split evenly between defense spending and domestic discretionary spending. That panel will have its first meeting in mid September.
Initially, the plan will cause minor cuts for state and local governments since they’re more heavily loaded on the latter-half of the decade. But by 2017, the cuts will be felt deeply, says Michael Bird, the National Conference of State Legislatures' senior federal affairs counsel. And Bird says the panel would almost certainly try to find savings in the Medicaid program. “You all know what that means,” Bird says.
He's advocating for a counter-cyclical provision that would increase the federal government’s match rate during times of economic stress to mitigate the impact on states. But, he conceded, “this is an uphill fight.”
Appropriations bills that the House has already passed provide a glimpse at the areas it will likely target under the terms of the debt deal. Those bills cut 14 percent of the budget for transportation and housing programs and 12 percent of the budget for labor, health and human services and education.
Programs of particular interest to state and local governments that are targeted for cuts by the House include the State Criminal Alien Assistance Program, the Environmental Protection Agency and the Byrne Memorial Justice Assistance Grants, among others.
But a more immediate threat to state governments, Bird says, is a battle over the 2012 budget that could result in a possible shutdown.
The fiscal year ends Sept. 30, but the House has only passed six of 12 appropriations bills needed to fund the federal government. The Senate has passed just a single bill, leaving precious little time for Congress to get the job down. “They’re not going to come close” to completing those bills in time, Bird says. That could result in another standoff that jeopardizing the continuing operations of the federal government, which has already occurred once this year. That kind of uncertainty is troublesome for state leaders.
Transportation will be an especially contentious subject. The Senate and House successors to the long-term highway and transit bill, SAFETEA-LU, are still miles apart, and that program also expires Sept. 30. So does the federal gas tax, which funds those programs. Given the recent battle that shut down the Federal Aviation Authority and temporarily kept the government from collecting airline taxes, a similar battle may be on the horizon for the gas tax and transportation program. "Anything could happen,” Bird says.
Meanwhile, the House continues to consider a series of bills, opposed by many state lawmakers, that seemingly promote good government but have political undertones like the DATA Act and a provision requiring more transparent pension accounting rules. Bird says he believes those issues, as well as provisions allowing state bankruptcy (which states vehemently oppose) and prohibiting state bailouts will likely be rolled into an all-encompassing omnibus House bill addressing the supposed default crisis facing states. Many experts have debunked that issue, saying states aren't at risk of defaulting on their debt and aren't facing insurmountable, long-term fiscal struggles.
Ironically, the ongoing crises that seem to emerge every few months in Washington could have a negative impact on incumbent state lawmakers. “We look good by comparison,” said Massachusetts Rep. Jay Kaufman. But to the public, the distinction between state and federal lawmakers might not matter, Kaufman fears.