With stimulus money gone, more federal budget cuts will deepen states’ problems

WASHINGTON–When Congress passed a stop-gap funding bill last week, it was not the usual plumped-up emergency spending bill to keep the government running.

It was, by Washington standards, a relatively slim funding measure-and one that sent a message to states: Not only is the federal stimulus spigot shut off, but other programs that provide aid to states may be cut as well.

greenstein, robert

CBPP’s Robert Greenstein: Making ‘states’ fiscal situations worse’

“I really think the federal government is going to move in the next year from providing fiscal relief to states … to [making] states’ fiscal situations worse,” Robert Greenstein, head of the left-leaning Center on Budget and Policy Priorities (CBPP), said at a forum this week on the fiscal choices facing policymakers.

Such a reversal could hit Connecticut particularly hard, as the next governor and state legislature grapple with a projected $3.3 billion budget deficit.

“The problem is bad enough by just taking away the extra [federal stimulus] money we had,” said Alan Calandro, director of the state Office of Fiscal Analysis. “What other cuts are we going to see?… Everybody is worried about that.”

In the short-term, after the Nov. 2 elections Congress will take up a dozen unfinished appropriations bills for fiscal year 2011. Even with Democrats still in charge for the lame-duck session, there will be no appetite for fat domestic spending bills.

President Barack Obama has called for a freeze in most non-discretionary spending. And this summer, House Democrats advanced a budget blueprint calling for some significant cuts, with the details still to be decided.

“That’s going to have an effect on programs across the board,” said Rep. Rosa DeLauro, D-3rd District, from funding for Head Start to scientific research. “States are still in very difficult situations here, so what’s being talked about here will only compound that,” said DeLauro, who sits on the House Appropriations Committee.

Not everyone agrees that Congress is on the cusp of a new era of federal restraint.

Alan Viard, a federal budget expert at the conservative American Enterprise Institute, a Washington think tank, said the pressure for at least small increases in federal spending will be “quite substantial,” particularly from states struggling to close massive budget gaps.

Connecticut is hardly the only state in fiscal trouble. Already, at least 39 states are projecting budget deficits, to the tune of a combined $112 billion. And Viard said it remains to be seen whether lawmakers, despite their current political rhetoric, will actually resist responding to financial pleas from back home.

Even if lawmakers opt for a freeze on spending instead of cuts, that means no adjustments for inflation and no accounting for the increased demand for government services in this economically difficult climate. “That’s a tough measure right there” for states already in a fiscal hole, said Nicholas Johnson, director of the state fiscal project for the CBPP.

And when a new Congress is sworn in come January, the pressure on lawmakers to cut federal spending is likely to ramp up, no matter which party is in charge. The National Commission on Fiscal Responsibility and Reform is scheduled to issue recommendations for balancing the federal budget by Dec. 1, setting the scene for Congress’s return to tackle spending questions.

Already, some Democrats, including Reps. Jim Himes and Chris Murphy, from Connecticut’s 4th and 5th districts respectively, have pushed for a 1 percent cut in federal spending as a starting point. Republicans, meanwhile, have called for far deeper rescissions. In their “Pledge to America,” the House GOP vows to slice $100 billion from the federal budget next year.

Aid to the states now makes up 20 percent of domestic discretionary spending. That covers everything from federal assistance for K-12 education programs to transportation funding to maternal and child health grants.

Several budget experts said that while Democrats will likely spare key programs, such as education and Medicaid, they could trim or eliminate a raft of smaller state-aid initiatives.

In June, for example, the Obama Administration directed all federal agencies to develop budget plans for next year that would cut at least 5 percent from their 2011 spending requests. The list of “vulnerable” programs includes many block grants that states particularly like because of their flexibility, said Marcia Howard, executive director of the Federal Funds Information for States, a nonpartisan research group.

Among those on the FFIS’s endangered list: grants for community policing, for elderly and disabled housing, for low-energy heating assistance, and for state and local anti-bioterrorism initiatives.

If Republicans gain control of the House or the Senate, that list would undoubtedly broaden. The GOP’s Pledge does not detail what cuts Republicans would make to shrink the federal budget by $100 billion, but it could hit everything from education to transportation spending.

Any significant cuts would “probably dramatically affect Connecticut, more than other states,” said state Rep. Vincent Candelora, of North Branford, the ranking Republican on the Finance, Revenue and Bonding Committee.

He said Connecticut’s decision to punt on tough budget decisions last year, by relying on one-time fixes like the federal stimulus dollars and borrowing money, means the legislature starts its next budget cycle without many fall-back options.

“We don’t have any pots of money around any longer to fill new holes,” he said. “So to the extent any programs are reduced at the federal level, those reductions will have to be passed on to the consumers of those programs.”

State Rep. John Geragosian, D-New Britain, co-chairman of the Appropriations Committee, predicted that the state’s budget outlook would improve over the next few months. But he agreed that fewer federal dollars would hurt Connecticut, so he’s hoping the Democrats keep control of Congress to keep that potential to a minimum.