"We know there's going to be cuts," says Peggy Welch, a Democratic state representative from Indiana who's a member of a deficit reduction task force organized through National Conference of State Legislatures (NCSL). NCSL leaders believe that Washington's deficit-reduction efforts could result in states losing 10 to 25 percent of the federal funding they receive each year.
Task force members have spent the last two days meeting with members of the deficit committee and their staffs, as well as the White House Office of Management and Budget.
The state legislators are urging members of the super committee to consider the impact their decisions will have on state budgets, which are still strained as a result of the recession. Unlike the federal government, nearly all states are required to have balanced budgets, and states collectively faced a $91 billion budget gap as they enacted their FY 2012 budgets earlier this year, according to a new NCSL report released this week.
Among the state lawmakers' biggest priorities is trying to convince the feds to relax Medicaid maintenance-of-effort requirements if the committee winds up slashing Medicaid funding. They're also pushing for Congress to create a counter-cyclical mechanism that would increase the federal government's contributions to Medicaid during periods of economic downturn. During downturns, Medicaid enrollment swells at a time when states are least able to afford it.
President Obama's own deficit reduction plan calls for $72 billion in savings from Medicaid.
Scott Dibble, a Democratic state senator from Minnesota, says that if the committee cuts Medicaid spending without allowing states to make significant changes to the program, it would really just be a backdoor tax increase, since the cost would simply be shifted to taxpayers at the state level.
As part of the 2009 stimulus package, the federal government increased its share of spending in the federal-state joint Medicaid program. That funding allowed states to pay for increases in Medicaid enrollment that accompanied the recession, and avoid some cuts to benefits. States accepted that aid on the condition that they'd accept maintenance-of-effort requirements and wouldn't make it more difficult for residents to qualify for Medicaid. Today, even though that enhanced funding has expired, states are still bound by those requirements.
Some pundits have speculated that states would actually benefit if the super committee fails at its task. If that happens, an automatic process known as sequestration would trigger across-the-board spending cuts, but Medicaid -- the single largest component of state spending -- would be exempt. Members of the NCSL committee who met with Governing and other journalists Wednesday emphasized that they want to avoid the sequestration process at all costs, since it would inject even more uncertainty into their budgets. "We don't want anyone kicking the can down the road," says Ellen Roberts, a Republican state senator from Colorado.
State lawmakers say they understand and appreciate the work of the committee. While they accept that they'll almost certainly face significant cuts to their funding, they argue they shouldn't face a disproportionate degree of pain. They also say that if the deficit committee releases a plan, the Congressional Budget Office should include a study of how it will impact states.
State lawmakers are also urging the committee to preserve existing funding levels for transportation and infrastructure programs. Republicans have already proposed deep cuts to the country's surface transportation legislation. State lawmakers also say programs serving low-income populations should be preserved.
Interestingly, states are also using the deficit reduction debate to make the case for the Main Street Fairness Act, which would make it easier for states to collect taxes from online retailers like Amazon.com. State officials say that for years they've missed out on sales tax revenue they're legally entitled to, since many online retailers often don't collect and remit sales taxes from their customers. State officials are arguing that, since they'll almost certainly see cuts as part of the deficit reduction maneuvers, Congress should empower them to increase their revenue by forcing online retailers to collect sales tax similar to the way that brick-and-mortar retailers do.
The proposal faces resistance since it would essentially have the same impact as a tax increase, even though states say they simply want a mechanism to collect money they're already owed.
