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House Republican Budget Plan Would Hit States — and Economy — Hard

A recent budget proposal from House Republican leaders could lead to a $32 billion reduction in fiscal year 2011 funding for programs operated by state and local governments — a step that would be harmful at any time but would be extremely ill-advised at this time, with states facing unprecedented budget shortfalls and the expiration of fiscal relief from last year’s Recovery Act.

GOP leaders featured the proposal in their “Pledge to America” campaign document and have since said they plan to pursue it.  The plan would cut overall spending for discretionary (non-entitlement) programs other than those related to defense or homeland security by $105 billion (21.7 percent) below President Obama’s proposed level and by $101 billion (21.1 percent) below last year’s level, adjusted for inflation.

Lawmakers would be hard-pressed to implement this proposal without cutting deeply into grants in aid for state and local governments.  Those grants, which help support a wide range of public services — education, environmental protection, job training programs, public health services, child care assistance, law enforcement programs, and others — represent roughly a third of all non-security funding.  If lawmakers applied the 21.7 percent cut across the board to non-security discretionary programs, state and local grants would be cut by $32 billion; the table below lists the dollar cost to each state if each state’s grants were cut by the same percentage.  (See here for our new report on this issue.)

Such cuts would make an already bad state and local budget situation worse, and would further slow an already tepid economic recovery.

Despite the budget cuts states have implemented over the last two years, the continuing dramatic reduction in revenues from the economic downturn will require them to take additional steps to balance budgets this year and next even without the cuts in grants threatened by the GOP leaders’ plan.  States will close about $100 billion in shortfalls by the time the current fiscal year ends (next June 30 in most states), and shortfalls for next year will likely reach $134 billion — higher than in 2010 or 2011 because federal fiscal relief will largely end after this year.

To balance their budgets, states have cut funds for education, health programs, and services for vulnerable populations.  They also have shrunk their payrolls by more than 400,000 jobs since mid-2008.  These layoffs raise unemployment and slow the economy as laid-off workers cut back on their purchases.  Similarly, when states cancel contracts and cancel or delay payments to private companies and nonprofits that provide services, that slows the economy by reducing overall demand.

Economists estimate that state and local budget-balancing actions are already reducing economic growth.  The GOP leaders’ plan would further impede it.

Cuts in Funding for State and Local Programs Under the House GOP Leaders’ Proposal in Federal Fiscal Year 2011, If These Cuts are Proportional to Those Required of Non-Security Programs Overall
(in millions of dollars)
State Cut in Discretionary Funding State Cut in Discretionary Funding
Alabama $581 Montana $141
Alaska $151 Nebraska $179
Arizona $913 Nevada $178
Arkansas $329 New Hampshire $115
California $3,610 New Jersey $788
Colorado $427 New Mexico $270
Connecticut $314 New York $2,574
Delaware $92 North Carolina $853
District of Columbia $152 North Dakota $103
Florida $1,652 Ohio $1,213
Georgia $992 Oklahoma $382
Hawaii $130 Oregon $355
Idaho $162 Pennsylvania $1,299
Illinois $1,379 Rhode Island $145
Indiana $600 South Carolina $453
Iowa $355 South Dakota $121
Kansas $269 Tennessee $628
Kentucky $507 Texas $2,377
Louisiana $581 Utah $249
Maine $151 Vermont $86
Maryland $481 Virginia $633
Massachusetts $645 Washington $548
Michigan $1,106 West Virginia $254
Minnesota $483 Wisconsin $487
Mississippi $432 Wyoming $115
Missouri $592 U.S. Total $31,630