Federal debt deal pass-through to state and local governments

Posted by AzBlueMeanie:

The dirty little secret of the federal debt deal is that it will be passed through to state and local budgets. Way to go Teabaggers and acolytes of Grover Norquist. You just blew up Arizona's budget with your faith based supply-side "trickle-down" economics — AGAIN!

Ezra Klein reports Why any debt-ceiling deal will squeeze the states:

No matter how the debt-ceiling fight is resolved in Congress, it’s going to end poorly for the states.

* * *

[W]hat’s been largely ignored is how the very solution to the debt-ceiling crisis could also squeeze state and local governments that are already strapped for cash.

Among the biggest items on the chopping block in Congress are education and Medicaid spending — federal dollars that make up the largest parts of most states’ budgets. Nearly every state government has already set its budget for the next year — some for the next two years — under the assumption that federal spending would remain more or less consistent. If such money is abruptly pulled, states won’t suddenly be able to change their spending obligations or raise taxes.

“They’re going to have to eat that in some way, and many will pass [the cuts] onto local governments,” said Frank Shaforth, director of the Center for State and Local Government Leadership at George Mason University.

Amid the recession and dropping revenues, there’s already been an uptick of bankruptcy filings by cities, towns and rural districts across the country over the past two months and there could be more if Washington follows through on its promise to slash spending as soon as possible.

“The cities and counties that already in bad shape — they’re the first ones to go,” White said.

Even if state governments hold special sessions to cut spending further, their cuts will still “filter through to the local government,” he added. “Public-sector workers get laid off. There’s higher employment and lower spending.”

Local governments will try to raise property taxes to raise revenue, which could be yet another drag on a housing market that’s yet to recover. Those who fail to meet their fiscal obligations could see their credit downgraded, making it even harder for them to borrow money to build basic local infrastructure, while both the president and the GOP have threatened to pull funds for state infrastructure. What was once an ideological abstraction — “austerity” — will have very real effects on everyday life for average Americans.

Some state and local officials are already bracing for the worst. . .

* * *

With state and local voices largely absent from the Washington debate, officials and advocates are struggling to make their concerns heard — and remind Congress that slashing federal spending could have a massive, unanticipated ripple effect on every level of government.

The AP adds today Debt ceiling fix could mean problems for states:

While the details of the spending cuts to states remain unclear, lawmakers from both parties have discussed the need to cut or impose caps on so-called discretionary spending over the next decade.

That could mean wide-ranging cuts in federal aid to states, affecting everything from the Head Start school readiness program, Meals on Wheels and worker training initiatives to funding for transit agencies and education grants that serve disabled children.

There also was concern among governors, state lawmakers and state agency heads that Congress would make deep reductions or changes in federal aid for health services for the needy, most notably through Medicaid. That could shift more of the costs onto states that already are having trouble balancing their budgets.

"We have the potential for disaster should there be a major realignment in federal funding that results in a cost shift to states," said Nevada state Sen. Sheila Leslie, a Democrat from Reno who recently discussed the issue with Obama administration officials in Washington. "In short, we are teetering on the edge right now, and a cost shift could send us over the cliff."

* * *

A concern in many states is a possible change in the federal-state formula known as FMAP, which is used to fund Medicaid programs. In Nevada, for example, the federal government pays 55 percent of the cost. Every 1 percent of cost that is shifted to the state equals roughly $15 million.

"The change in FMAP is probably one of the more fearful ones that we could experience," said Mike Willden, director of the Nevada Department of Health and Human Services.

* * *

The long-term effects of a compromise to raise the debt ceiling could come as a surprise to many state officials, said Rep. George Miller, of California.

Our Tea-Publican Governor and Legislature had better start explaining contingency plans for the state budget deficit that is going to result from this GOP "austerity" at the federal level and the economic slowdown and increased unemployment this debt deal is going to cause in the near term.