States and the Debt Deal

Posted on August 3, 2011 by townsend

• With debt deal, states brace for cuts in federal aid, By Michael A. Fletcher, August 2, 2011, Washington Post: “The domestic spending cuts contemplated in the debt-ceiling deal are sure to compound the dire fiscal situation confronting the states, which already are reducing jobs and slashing once-untouchable programs to balance their budgets. The measure that President Obama signed into law on Tuesday does not lay out specific reductions, but with federal dollars accounting for a third of state revenue, analysts said steep cuts will be unavoidable…”
• Fewer cops, more potholes: How debt deal could hit states hardest, By Patrick Wall, August 2, 2011, Christian Science Monitor: “The debt-and-deficit bill signed into law on Tuesday forestalled a dangerous federal government default. But it will also slash aid to states already reeling from the recession, almost certainly forcing them to curtail services and raise revenues to pay for programs once bankrolled by Congress. The bill, which the Senate approved and President Obama signed into law Tuesday, will eventually raise the government’s debt limit by more than $2 trillion in exchange for equivalent savings. Congress will achieve nearly $1 trillion of those savings by cutting domestic discretionary spending – including funds for education, health care, job training – to its lowest level in over half a century, as a share of the GDP…”
• For states, debt deal is short on details, By John Gramlich and Melissa Maynard, August 2, 2011, Stateline.org: “As state officials begin to decipher Washington’s spending reduction deal, it’s clear that federal aid to states for certain programs will take a hit over the next decade. But it will be a while before they know exactly which programs and how big a hit. That’s because the deal, which the U.S. House passed Monday night (August 1), leaves a lot of choices hanging into the future. It calls for $917 billion in deficit reduction over 10 years by setting caps on discretionary spending. But exactly how to meet those caps – and what funds to states might be cut – is a question for Washington to answer another day. Also undetermined is how much a joint congressional committee charged with finding another $1.5 trillion in deficit savings would cut from aid to states. So for states, which have been waiting anxiously to see whether the federal government would soon begin defaulting on its payments, there is relief – but also more waiting ahead…”