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Trump Budget Slashes State and Local Grants at Tough Time for States

President Trump’s new budget would push huge additional costs to states at a time when most of them lack the revenue to pay for current services.  Low-income families would be particularly hard hit, as the budget eliminates or deeply cuts funding for a wide array of state programs and services that help these families overcome hard times and rise into the middle class. 

The budget includes roughly $18 billion of specific cuts in federal discretionary (annually appropriated) grants to state and local governments for fiscal year 2018. Among the state and local programs it would eliminate or sharply cut are more than $3.9 billion in K-12 education grants that, among other things, promote more effective teaching and support after-school enrichment programs.  It also cuts $4.2 billion by eliminating both the Low Income Home Energy Assistance Program, which helps low-income households, including many poor seniors, pay for heat, and the Community Services Block Grant, which provides anti-poverty services through states, localities, and nonprofits. 

In addition, the budget eliminates two important housing block grants, reducing funding by another $4.2 billion: the Community Development Block Grant, which rehabilitates affordable housing and supports related services in low-income neighborhoods, and the HOME program, which develops and preserves affordable housing.  It also includes other specified cuts in environmental, job training, and emergency readiness grants.

Overall, the budget cuts non-defense discretionary (NDD) spending — outside Veterans Affairs and Homeland Security, the two non-defense departments that the budget would increase — by 15 percent.  Since support for state and local programs makes up a significant portion of NDD spending, there will undoubtedly be additional cuts to state and local grants outside those that the budget specifies.  This part of the budget is already at very low levels in historical terms, with discretionary grants to states and localities totaling just over 1 percent of gross domestic product.

The President hasn’t specified his plans for state and local grants that lie outside of NDD, but he supports a House bill that would eliminate federal funding for the Affordable Care Act’s Medicaid expansion over time and cap federal funding for all of Medicaid, thereby shifting costs to states and forcing large and growing cuts to the program over time.  States rely on Medicaid to provide medical services to low-income people who can’t afford needed care. 

This is a bad time to shift large new costs to states.  Despite the relatively healthy economy, two-thirds of states face a revenue shortfall either this year or next.  Mid-year 2017 shortfalls equal $16 billion and projected 2018 shortfalls total $30 billion. The President’s budget justifies several of its cuts by stating that states or localities could better provide the services but, without adequate resources, that’s highly unlikely.