States and Cities Brace for Less Federal Money

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.”