However debt debate is resolved, impact on state will be harsh

WASHINGTON–Connecticut’s got nothing on Washington when it comes to budgetary uncertainty and legislative double-takes. Thursday’s on-again, off-again vote in the U.S. House on a Republican debt-ceiling plan underscored the ambiguity about how, or whether, lawmakers in Washington will be able to resolve the current debt-ceiling standoff.

But amid the chaos, one thing is pretty clear: States like Connecticut will take a financial hit in any debt-reduction agreement that Congress comes up with.

“I think that’s a real safe thing to say,” said Marcia Howard, executive director of the Federal Funds Information for States, a nonpartisan group that tracks the fiscal impact of federal budget decisions on the states.

Howard’s group has been fielding a barrage of questions from governors’ offices around the country seeking data about how the various debt-reduction plans coursing through Congress would impact state budgets.

For now, she and others say, there is no good answer.

“It’s murky,” said Dan DeSimone, director of Connecticut’s Washington D.C. office.

That seems like an understatement against the backdrop of this week’s events in Congress, where gridlock persisted over how to raise the nation’s debt ceiling despite an Aug. 2 deadline that could put the country on the brink of default. There are two debt plans now pending in Congress, with the fate of both unclear at this point.

A teetering Republican plan, put forward by House Speaker John Boehner on Monday, would raise the debt-ceiling by $2.5 trillion in two phases. The first hike would come after immediate spending cuts of about $900 billion and a second $1.6 trillion debt-ceiling increase would come in six months, contingent on a package of $1.8 trillion in cuts. The second set of reductions would be determined by a special legislative committee in the coming months. Both phases would undoubtedly involving taking the axe to federal programs that channel aid to states.

The Boehner plan was on life support as of Friday morning.

The second plan was put forward by the Senate Majority Leader Harry Reid, D-Nev. Reid’s proposal would raise the debt-ceiling by $2.7 trillion and enact a corresponding level of spending cuts.

A significant chunk of that–more than $1 trillion–would come from anticipated savings in the wind-down of the Iraq and Afghanistan wars. Another $1.2 trillion, however, would come from imposing caps on discretionary spending.

At this point, Reid has only identified top-line budget goals, so it’s impossible to say how those would be parceled out as cuts to specific federal programs. And that’s not likely to be clarified anytime soon-even if Reid’s plan passes.

That’s because the deficit reduction spelled out in Reid’s measure (and the same is true of Boehner’s) is achieved through caps on discretionary spending, defense and domestic programs alike. But the caps won’t get put into place with any detail until lawmakers on the House and Senate spending committees get to work, after a deal is in place.

“The actual substance of what that means will be determined by the regulator appropriations committees,” DeSimone notes. “So what specific programs will be cut, that’s still to be determined.”

Said Howard: “You just can’t take the big numbers and say ‘Oh, we’ll get a cut of that much’.”

But, she added, “We can say states are going to be hard hit. You could wipe out all [federal] grants [to states] and you wouldn’t reach the totals they’re talking about… The numbers they are taking about are just so big.”

According to an FFIS report, federal dollars accounted for 14.6 percent of Connecticut’s general revenue in 2008. So any decrease in that would be hard to absorb.

And Howard said that if and when any big-number budget caps get translated into real-world spending cuts, the most vulnerable items are almost always federal grant programs, a vital source of state revenue. She noted, for example, that when lawmakers took the budget knife to the 2012 homeland security spending bill, they cut about 2.5 percent from current fiscal year funding levels. But state and local emergency-management grant programs within that bill took a whopping 57 percent reduction.

“This is because grant programs tend to bear the brunt of federal budget-cutting activity,” FSIS concluded in a recent debt-ceiling analysis done for the states.

DeSimone said he’s particularly worried about programs like the Low-Income Home Energy Assistance Program (LIHEAP). That federal aid program, which helps the poor cover home heating costs and is vital to New England residents, took at hit in the fiscal year 2011 budget deal reached between the White House and Republicans earlier this year. “If they were to go further than that than what they did in FY 2011, you could see a real problem for Connecticut,” DeSimone said.

Given that uncertainty, it’s no wonder that many lawmakers in the Connecticut delegation are undecided about how they would vote on the Reid plan, even as it emerges as the more viable debt-ceiling bill before Congress.

“I definitely find it preferable to Boehner’s plan,” said Rep. Joe Courtney, D-2nd District. “But we’ve really gotten very little detail.”

He said, for instance, that he’s heard wildly varying rumors about how the Reid plan would impact defense spending, a major issue for his district in particular and for Connecticut in general.

Of the $1.2 trillion in spending cuts, Courtney said he’s heard that as little as $250 billion and as much as $800 billion would come from defense spending. He discounted the larger number, saying he didn’t think that was accurate. But if it is, “that obviously would have an impact on Connecticut.”

Courtney said it is questions like that keep him from being a firm “yes” vote on the Reid plan, even while he says it’s highly preferable to Boehner’s proposal, which he notes would bring Congress back to the debt-ceiling brink in six months.

Similarly, Rep. Chris Murphy, D-5th District, said the “the Reid plan is infinitely better than Boehner.” But he, too, wouldn’t say how he would vote on such a proposal until he gets more details. And he’s worried that might not come soon enough.

“We’re going to be asked to vote on $2 trillion worth of cuts with almost no time to evaluate how that’s going to impact our state,” Murphy said. “This is crazy.”