The Week in Public Finance: The Trump Budget Edition

A roundup of money (and other) news governments can use.
by | May 26, 2017
Someone holds a copy of President Trump's fiscal 2018 budget at the U.S. Government Publishing Office's plant. (AP/Carolyn Kaster)

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Hysteria Over Cuts

President Trump unveiled his budget this week, and while it merely expanded upon an outline he submitted in March, it was still met with near-immediate outcry from state and local government groups.

In the budget, the president proposes diverting more than $54 billion from various federal agencies to boost defense spending. He also cuts $260 billion over 10 years in expected discretionary spending, a move that critics say drastically reduces federal funding and grants for vital state and local programs that create jobs, raise wages and protect low-income Americans. In total, Trump’s proposal would cut federal spending by more than $3.6 trillion over the next decade.

U.S. Conference of Mayors CEO Tom Cochran issued a statement saying that mayors across the country were "deeply troubled by President Trump’s brazen attack on the very people he promised to protect."

The Takeaway: Trump’s budget included so many drastic changes that even Republicans in Congress were uncomfortable with parts of it. It’s unlikely to pass as is, but it still has state and local governments worried.

One of the main reasons they're concerned: Medicaid. Trump’s budget assumes full passage of the House-passed version of the American Health Care Act, which cuts $839 billion from Medicaid and pulls funding from Planned Parenthood. Trump would cut another $610 billion from Medicaid over 10 years. The changes will ultimately result in cuts of up to 25 percent in what states receive in Medicaid funding, forcing them to choose between reducing medical coverage for the poor or footing the bill themselves.

Trump’s changes to the federal food stamp program would also leave states with hard choices. He proposes requiring states to eventually pay for one-quarter of the $66 billion annual federal program.

Finally, Trump's budget proposes eliminating the Community Development Block Grant (CDBG) program, which mayors describe as “the heart, lungs and backbone of cities and counties." The budget document says the federal government has spent more than “$150 billion on CDBG since its inception in 1974, but the program has not demonstrated results.” It also says that decreasing appropriations “combined with an increasing number of localities qualifying for CDBG allocations has reduced the size of the individual grants over time, making CDBG less impactful.”

 

The Plan for Boosting Infrastructure Spending

Trump has promised a $1 trillion investment in our nation’s infrastructure. His budget finally provides some clues as to how he'll do that.

For starters, Trump proposes spreading $200 billion in federal investment out over 10 years, starting with $5 billion in 2018, ramping up to $50 billion by 2021 and then gradually sinking back to $5 billion.

The budget says the federal investment will be supplemented with “incentivized non-federal funding,” expeditated projects and revising or eliminating cumbersome regulations. “Simply providing more federal funding for infrastructure is not the solution,” the budget reads. “Rather, we will work to fix underlying incentives, procedures and policies to spur better and more efficient infrastructure decisions and outcomes across a range of sectors, including surface transportation, airports, waterways, ports, drinking and wastewater, broadband and key federal facilities.”

The Takeaway: While the outline of infrastructure priorities is a start, most folks are worried about the overall picture. Namely, Trump’s proposed budget cuts more than $2 billion from the Department of Transportation next year.

Mass transit is also of particular concern. According to Moody’s Investors Service, transit agencies rely on federal funding for nearly half of their capital funding. Trump proposes eliminating any new grants from the Federal Transit Administration’s Capital Investment Program. The rationale: “Future investments in new transit projects would be funded by the localities that use and benefit from these localized projects," according to the budget.

 

Will This Jump-Start the Economy?

That question has stirred up great debate since Trump first introduced his budget outine and tax plan earlier this year. This week saw a new wave of criticism regarding the administration’s projections, including a rare alignment of the ideological left and right.

Washington state Rep. Pramila Jayapal, a progressive Democrat, eviscerated the budget during a committee hearing for having “absurd revenues and pretend economic projections." Her comments were echoed by South Carolina Republican Mark Sanford, a member of the hard-right House Freedom Caucus. Saying it was “disastrously consequential to build a budget on 3 percent growth,” Sanford called the document "not only a myth, it's frankly a lie.”

For his part, Office of Management and Budget Director Mick Mulvaney responded that the budget was designed to address stagnant economic growth. “Trumponomics is whatever can get us to 3 percent growth,” he said.

The Takeaway: Faster growth would be a welcome boon for state and local budgets. Economic growth is projected to be a mere 1.8 percent over the next decade, which is more than a percentage point below historic levels.

Trump proposes producing faster growth by injecting a stimulus into the economy in the form of massive tax cuts.

Indeed, this could have a positive short-term impact on state revenues. It could also be followed by more disappointment in the long term. That’s because, as the Committee for a Responsible Federal Budget notes, a stimulus is typically used during a recession as a way of helping the economy recover to its potential. “With the unemployment rate well below 5 percent, the economy is likely already operating near its potential,” the committee said in a paper this month. It added: “Any faster near-term growth generated through deficit-financed tax cuts or spending would likely be offset by slower growth in subsequent years.”

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