Vice President for State Fiscal Policy
Federal support for most state and local programs has fallen sharply as a share of the economy and is on course to reach its lowest level in 50 years. That will make it increasingly hard for states and localities to meet core responsibilities like educating children, keeping drinking water clean, maintaining roads and bridges, and providing fire protection.
The 2011 Budget Control Act (BCA) imposed annual caps on discretionary funding, which includes most of the programs that support state and local priorities outside of health care, including schools, fire departments, and water treatment plants. These caps have already cut federal support in many areas. For instance, Title I funding for high-poverty schools is 11 percent below the 2010 level, adjusted for inflation.
Overall federal discretionary aid to states and localities is at its lowest level since 1989 as a share of the economy. By 2019, it will fall to its lowest level since 1969 if state and local funding receives at least a proportional share of the BCA cuts. That’s a safe assumption: this budget area also includes veterans’ hospitals, border protection, the FBI, biomedical research, and other programs that are much less likely to see major cuts than state and local funding.
To be sure, federal Medicaid funding — which makes up close to half of federal aid to states — will rise in coming years, partly due to health reform’s coverage expansions. But federal support for most other state and local activities will likely continue shrinking.
Even more concerning, the Republican budget plan that Congress approved earlier this year would cut discretionary funding even deeper. Over the next ten years it would push discretionary funding for states and localities to less than half its level in 2008 as a share of the economy (before the 2009 Recovery Act temporarily boosted funding) if this spending category receives a proportional share of the cuts. (See chart.)
States and localities have a strong case to make to federal policymakers to reverse course, given the importance of these services to the nation’s well-being.