SNCJ Spotlight: Another Round Of Cuts Coming To States?

Congress' departure for summer recess last month without reaching a deal on the federal budget has state officials bracing for another round of sequestration cuts.

Federal funding, mostly in the form of grants, comprises roughly 30 percent of state budgets, on average (see Bird's eye view). And the Federal Funds Information for States, a Washington D.C.-based group that helps states manage their federal funds, estimates that another round of sequestration would eliminate roughly three-quarters of that money — about $4.2 billion — from state budgets in the 2014 federal fiscal year, which begins Oct. 1.

That total is less than the $4.6 billion sequestration hit states took in FY 2013. But another round of cuts — on everything from public housing assistance and money for schools with low-income students to food inspection, scientific research and environmental protection — might actually be more painful, coming on top of the previous ones.

"They [states] are already in a difficult spot because they already have imposed major cuts to their schools and other public services," said Michael Leachman of the progressive Center on Budget and Policy Priorities. "If they enter those legislative sessions having to deal with additional cuts in federal funding for schools or law enforcement or clean water or programs that help low-income families, that makes their job even more difficult."

Although states are on firmer financial ground than they were during the recession, they certainly don't have the resources to replace the money that would be lost to another round of sequestration.

Hawaii, for instance, has set aside $15 million to plug sequester holes, and its Department of Budget and Finance is taking applications from state agencies and departments for that money. But Kalbert Young, the state's budget chief, said the government entities and the public have already been told "NOT to assume that the state will automatically support programs at their pre-sequestration levels."

"The anticipation is that there will not be enough funds to meet all requests, so the state will have to make a decision on priority as to which programs are going to be supported and at what levels," he said.

Ohio budget chief Timothy Keen, likewise, said his state doesn't "contemplate making up with state dollars whatever the federal cuts might be."

"Might there be some cases [where we will add funds], yes. But it's not our policy to backfill with state dollars."

Even states that receive relatively little in federal funding and are, therefore, fairly insulated from sequestration, would likely feel the impact of another round of cuts. The St. Paul Pioneer Press reported last month that nearly 1,000 fewer children would be enrolled in Head Start programs, and services for the elderly, native Americans, the military and those needing low-income housing would be cut in Minnesota, which ranked 49th in per capita federal expenditures in FY 2010.

Sequestration has also been part of the discussions surrounding the Obama administration's push for a U.S. strike against Syria in retaliation for its suspected use of chemical weapons against its own citizens last month. Current and former military officials say the cost of a limited Tomahawk missile strike against Syrian command structures and chemical weapons delivery systems would be absorbed relatively easily. But the cost could quickly escalate if additional U.S. action was called for, such as targeting Syria's air defenses or establishing a no-fly zone using aerial patrols. And some argue that the Syrian crisis is another example of why the military must be spared the $500 billion in spending cuts sequestration is expected to impose on it over next decade, on top of $487 billion in other cuts.

"We cannot keep asking the military to perform mission after mission with sequestration and military cuts hanging over their heads," chairman of the U.S. House of Representatives Buck McKeon (R) told CNN last week.

The prospect of the Republican-controlled U.S. House and Democrat-controlled U.S. Senate averting another round of sequestration by reaching agreement on a new budget by the start of the new fiscal year doesn't seem likely, however. The two chambers don't even agree on what the total amount of spending for fiscal 2014 should be, with the House setting that figure at $967 billion and the Senate at $1.058 trillion.

Although House leaders like Speaker John Boehner (R-Ohio) and Majority Leader Eric Cantor (R-Virginia) have repeatedly indicated their desire to see a deal reached to end the sequester cuts, they have been stymied by a small group of Tea Party-affiliated freshmen like North Carolina Rep. Mark Meadows (R), who contends the cuts have actually helped the economy. Meadows believes that curbing federal spending has given business leaders more confidence that Congress is committed to "getting our fiscal house in order," something he says will lead to sustained economic growth.

The numbers, however, don't appear to support that view. According to Stuart Hoffman, chief U.S. economist at PNC Financial Services Group, sequester cuts have prevented about 180,000 additional jobs from being added to the economy since March. And the Congressional Budget Office estimated in July that immediately cancelling the sequester cuts would boost real GDP by 0.7 percent and add an extra 900,000 jobs to the economy by the third quarter of 2014.

"To say the sequester is good for the economy is wrong on a scale that's impressive," Neil Dutta, chief U.S. economist at Renaissance Macro Research, recently told Bloomberg Businessweek.

Federal officials acknowledge that the federal budget uncertainty places state and local governments in a difficult position.

"They [states and localities] have a further level of uncertainty," White House budget director Sylvia Mathews Burwell said at a Wall Street Journal breakfast roundtable last month. "Especially because much of their money is in the [federal] grant space."

State officials don't appear to disagree with that assessment. At the National Governors Association meeting in Milwaukee last month, Hawaii Gov. Neil Abercrombie (D) said the uncertainty was the most difficult part of the situation to deal with.

"I don't want to throw darts or rocks at anybody, I just want to know what the hell the numbers are," he said. (USA TODAY, STATELINE.ORG, ST PAUL PIONEER PRESS, REUTERS, BLOOMBERG BUSINESSWEEK)

Some states more dependent on federal dollars than others

On average, the states derive roughly a third of their budgets from federal funding. But in fiscal 2012, that rate was over 42 percent in South Carolina and Tennessee, and as high as 53.47 percent in Mississippi, according to data from the Congressional Research Service and the National Association of State Budget Officers. Connecticut and Hawaii, meanwhile, derived the lowest percentage of their state budgets from federal grants, 9.53 and 16.96 percent, respectively.

 

— Compiled by KOREY CLARK and RICH EHISEN

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