States and Cities Brace for Less Federal Money
Even as states around the nation breathed a sigh of relief on Monday that the United States would probably not default after all, and that the federal government would continue to pay its bills this week, they began to brace themselves for what many see as another looming threat: the impact of trillions of dollars in promised federal spending cuts on needed government services.
News Analysis: After Protracted Fight, Both Sides Emerge Bruised (August 1, 2011)
From Spending to Cuts, While the Economy Stalls (August 1, 2011)
Washington Memo: In World’s Eyes, Much Damage Is Already Done (August 1, 2011)
Deal May Avert Default, but Some Ask, ‘Is That Good?’ (August 1, 2011)
Governors and mayors who had spent the last few white-knuckled weeks counting the federal payments their states and cities were expecting this month, and making contingency plans in case the debt ceiling was not raised and those payments were held up in Washington, found themselves abruptly shifting gears on Monday and trying to figure out what the apparent debt ceiling deal in Washington will mean for them. Details of the deal were still in short supply Monday morning, but the cuts it calls for are big: at least $2.1 trillion over the next decade.
“Now that that bullet has been dodged, we’ve got to work just as hard to makes sure we understand the impact of this deal, and where these cuts are coming form,” Gov. Jack Markell of Delaware, a Democrat, said in an interview, noting that some of the proposed cuts will not be know for months. “We’ve got to make sure that the folks in Washington understand that if it’s just essentially a shift of these expenses from the federal government to the state governments and state taxpayers, that doesn’t really achieve anything.”
Many state and local governments were particularly concerned about absorbing new cuts in federal aid just as the federal stimulus spending has mostly run out, tax revenues have yet to regain their prerecession peaks and the painfully slow economic recovery and uncomfortably high unemployment rate are keeping demand for many services high. White House advisers were personally calling some governors on Monday to brief them about the deal.
Tom Cochran, the executive director of the United States Conference of Mayors, said that the proposed cuts in the debt ceiling deal were “devastating” to cities.
“They mean fewer cops, fewer firefighters and less money for job creation projects, housing and elderly care,” he said in a statement. “As relieved as we are about ending the debt ceiling crisis, we are just as concerned about these cuts and potentially more cuts to come in the future. We must close tax loopholes to the wealthy and corporations and look at other revenue adjustments. The focus now must be on investments for job creation because we can’t cut our way to economic prosperity.”
There was still plenty of uncertainty about timing. President Obama said on Sunday night that the deal would lead to “the lowest level of annual domestic spending since Dwight Eisenhower was president,” but added that the cuts would not happen immediately.
“We also made sure that these cuts wouldn’t happen so abruptly that they’d be a drag on a fragile economy,” he said. But governors and mayors were still trying to figure out which programs were on the block, and when the cuts might begin.
But states did see one hopeful sign. While the deal calls for a series of large automatic spending cuts in the coming years if Congress fails to agree on how to trim the budget deficit, it exempts Medicaid, perhaps the single most important stream of federal spending for states, from those automatic cuts. But some states worried that Medicaid could still be on the hook: it appeared that Congress could decide to cut Medicaid spending as part of its deal to forestall those automatic cuts.
But there was relief that cuts to Medicare and Medicaid would not be facing immediate cuts.
Much of the uncertainty stems from the mechanics of the deal itself. The deal requires a new committee of members of Congress to meet this fall to try to come up with ways to reduce the deficit by $1.5 trillion. If they fail, the deal calls for $1.2 trillion in automatic budget cuts, divided between defense and domestic spending, but leaving Social Security and Medicaid alone. Economists, and politicians, are divided in how they see the likely outcome of this proposal for a deficit-cutting committee, backed by the threat of automatic cuts.
Jagadeesh Gokhale, a senior fellow at the Cato Institute, the libertarian advocacy group, complained in a blog post that the deal did not cut spending enough, noting that since Congress might not be able to agree to its own cuts, the automatic cuts would spare programs like Medicaid and Social Security.
But Dean Baker, the co-director of the Center for Economic and Policy Research, a liberal policy group, warned that the deal could lead to “substantial cuts” to Medicare, Medicaid and Social Security, and that over all the deal would “modestly slow growth in the short term and are likely to take a big bite out of the investment portions of the budget over the longer term.”
“If the country does not maintain its infrastructure, its research and adequately support education, it will hurt productivity and slow growth over the longer term,” Mr. Baker said in a statement. “The agreement also sets in motion a process that could result in substantial cuts to Medicare, Medicaid, and Social Security to meet its debt targets. This would hurt retirees and near retirees, many of whom saw much of their wealth eliminated with the collapse of the housing bubble.”
In New York, Kenneth Raske, president of the Greater New York Hospital Association, an industry group, said that New York’s teaching hospitals had feared that they could lose as much as $1 billion a year under bipartisan plans floated earlier in the deficit reduction discussions, and that the association had run advertisements to try to persuade lawmakers to halt the cuts. He credited the New York Congressional delegation with helping to spare hospitals from immediate cuts in Medicare and Medicaid, but said that he worried about a provision that calls for automatically cutting Medicare payments to health care providers if Congress does not come up with more deficit reductions.
“However, in a few years, we could be facing a serious set of cuts emanating from the government, either ushered in by the automatic cuts in Medicare, which is a contingency provision, or cuts that would be proposed in Medicare and Medicaid” during future Congressional deliberations, Mr. Raske said in an interview Monday.
While officials in state and local government tried to get a handle on the details, many of the people they serve expressed relief and frustration in roughly equal measure.
Brad Taylor, a management consultant in the Denver suburb of Aurora, said that he was relieved that there would be no return of the debt ceiling debate before the next election.
“We do need to get this spending under control,” said Mr. Taylor, 40, who described himself as politically independent but is registered as a Democrat. “That being said, playing games that take us right on up to the 11th hour — it turned into a spitting contest that the rest of us could do without.”
Some people still worried about the outcome — and expressed new doubts about the government.
Meredith Quill, 38, who lives in Los Angeles and admits to leaning left politically, noted that the bill still had to pass, adding, “I just have very little faith in both the Democrats and Republicans coming together and doing something.”
“Right now, the Republicans are throwing anything at Obama to try to make him look like he’s not going to succeed, as opposed to wanting what’s best for our country,” she said. “I don’t think either side wants the other to succeed and look as though they’re progressing.”