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States struggling to assess budget damage from federal debt ceiling deal

Monday, Aug 1, 2011

* One benefit of my vacation was avoiding DC’s debt ceiling nonsense. But now that Congress and the President appear to have struck a deal, my main concern is how this will impact Illinois. There isn’t much out there about the impact on states at the moment. I received this statement from Gov. Pat Quinn’s budget office, which hopes to have more later today or tonight…

We are pleased our leaders in Washington have reached a compromise as to avoid any disruption of government activities. We continue to closely monitor and prepare for the final results and are working with agencies to evaluate the potential outcomes that could affect job creation, Medicaid and our infrastructure.

Yeah. Not much.

* Most of the stories regarding the deal’s impact on the states are now outdated because they were filled with pure speculation. The deal itself was finally released to the public today and you can read the full text by clicking here.

* There are hints, but the actual cuts apparently won’t be known for some time. From Bloomberg

States received about 35 percent of the $1.62 trillion spent during the 2010 budget year from the federal government, according to the National Association of State Budget Officers. The money is used for programs such as Medicaid, public works projects, and public schools. The debt-ceiling agreement requires Congress to cut $2.4 trillion from the federal deficit, including more than $900 billion in the next decade. […]

The debt-ceiling agreement doesn’t spell out how cuts are to be made, and much of that decision-making is left to a bipartisan congressional panel.

* CNN breaks it down

Outlays for discretionary programs, which include defense spending, would be cut by $741 billion.

On top of that, $156 billion would be saved because of reduced interest costs on the country’s debt. And $20 billion would be cut from education loan initiatives and by curtailing waste, fraud and abuse in other mandatory programs.

In terms of education spending, the bill would increase funding for Pell Grants by $17 billion between 2012 and 2015. It would also cut student loan funding by $22 billion over 10 years.

The spending caps in the bill would result in $21 billion in savings in the first year, and grow annually from there. By 2021, outlays would be reduced by $112 billion.

States get money from those “discretionary programs,” but, again, there are no details as of yet. States did get one spot of good news, assuming this thing passes

Moody’s Investors Service said last month it was reviewing the top credit ratings of municipal borrowers, including the states of Maryland, Tennessee and South Carolina, because of the tussle over the federal government’s finances.

Michael Bird, who tracks federal affairs for the National Conference of State Legislatures, said that may be averted should the compromise pass.

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- Posted by Rich Miller        

  1. - 47th Ward - Monday, Aug 1, 11 @ 3:57 pm:

    Welcome back Rich. I have to admit, I was searching for a CapFax methdone program for a while there and needless to say, I hope you had a great vacation. But never go away again.

    In recent years, I’ve become a huge fan of the Economist. They do a good job of analysing complicated issues without the partisan lens or dumbing it down for broad consumption. Here is their take on the debt ceiling deal and why liberals like me should step back from the ledge.

    The Tea Party can claim credit if they want, but notice the graph where spending keeps rising. The Joint Committee is likely to recommend deeper cuts to Medicaid, which will hurt Illinois, but I was mostly concerned about the destimulative effect of lowered federal spending during this weak recovery. It appears my fear was overblown.

    For now at least. I don’t think anything in the debt ceiling deal was good for the country, especially the awful debate, but it wasn’t (and isn’t) as bad as I feared.

  2. - Rich Miller - Monday, Aug 1, 11 @ 4:05 pm:

    ===but it wasn’t (and isn’t) as bad as I feared. ===

    Ergo the problem with the entire media-driven “debate.”

    ===I hope you had a great vacation. But never go away again.===

    I did. And I almost extended it another week. Oh, well. I made up for it this morning by accidentally sleeping in.

  3. - Angry Chicagoan - Monday, Aug 1, 11 @ 5:10 pm:

    Given what’s held harmless and what isn’t mentioned, expect the big impacts to be in terms of infrastructure (especially transportation) and education spending. And on rural Medicare providers, unless they make a very focused effort to go after the real bloat with hospital construction and specialty providers in urban areas and also those states (mostly Southern) that have disproportionately high per-patient Medicare costs.

    Transportation policy has been a particular disaster of this administration. The only clear bright spot has been the high-speed rail grants, with some hopeful signs on car fuel economy as well. Highway reconstruction, transit, and biking/pedestrian use have been big losers — in large part because the administration has persistently resisted any responsibility for funding, despite Jim Oberstar’s best efforts in the last Congress.

    Tolls on all Illinois interstates? CIty property tax levies increased to pay for transit repair and rehab? More rural hospitals closed? I’d expect to see all the above — unless the federal government needs to get back to its historical norm of about 20 percent GDP in revenue (currently it’s less than 15 percent). The reason we’re not there now is Clinton’s 1997 tax cuts on unearned income, and Bush’s 2001 and 2003 tax cuts. Most of those will have to go in order to get back to 20 percent. And that has real consequences because those tax cuts mostly went to very rich people, while the user fees, property taxes and service closures will mostly impact the middle class.

    By the way, re 47th ward, it’s worth bearing in mind that the Economist is still pretty conservative; they’re just rational, that’s all. They’re very happy with the Cameron government’s austerity program in the UK and they’ve long favored “sound money” policies even when resulting spikes in currency values and interest rates priced British manufacturers out of foreign markets. Don’t confuse them with something a liberal Democrat or a politician from the manufacturing heartland would or should be happy with — rather think of them as Tories who would get on well with pre-1994, pre-Gingrich Republicans.

  4. - Plutocrat03 - Monday, Aug 1, 11 @ 5:22 pm:

    Actually, the Economist is mostly aligned with the euro-socialist monetary policies practiced on the continent. Conservatives they are not.

    The bottom line is still having govenment live within its means. The bolus of money for rail will be insufficient to finish the proposed project, so where is Illinois going to find the $$ to complete the work, get the rolling stock and operate the system?

    The expansion proposed by the toll authority is another example of governmental growth by demanding that all the users pay for expansion that will only benefit a small percentage of users.

    Chicago residents need to pay attention because the city’s bond indebtedness is way of the charts and if the State and Feds stop feeding excess cash into their system, there will be a real shock.

  5. - Yellow Dog Democrat - Monday, Aug 1, 11 @ 5:22 pm:

    As a Democrat, its very disappointing that no effort was made on the local level to trace the impact of closing federal tax loopholes.

    Because Illinois’ tax code is lashed to the federal tax code, closing federal loopholes would have been a boon to state and local budgets.

  6. - Angry Chicagoan - Monday, Aug 1, 11 @ 8:01 pm:

    Well, Plutocrat, if conservatism means holding up the government and the entire US financial system to get your way ideologically, I guess the Economist flunks the conservative test. If conservatism means cutting spending far deeper than even the Tea Party has contemplated, simplifying the tax code and lowering rates, then the Economist exemplifies conservatism. Although of course they wouldn’t call themselves that. They’d call themselves “liberal”, as in John Locke, or the German Free Democrats, or Milton Friedman, or Hayek — in other words, classical liberals, not the left liberals that characterize the term here in the USA.

    You’re absolutely correct on the long-term impracticalities of rail funding, the lack of morals in toll expansion, and the city’s high bond indebtedness, but unfortunately wrong again on the big picture which is that the implication of “government living within its means” is rendered somewhat moot by the fact that its means of federal revenue has been chopped 20 percent below the long-term average by the Bush tax cuts. A majority of the current federal deficit crisis is therefore a revenue problem, and the remaining part is mostly the cost of wars and stimulus, with the longer-term problems on the spending side arising almost entirely from Medicare providers such as hospitals, specialist doctors and drug companies. Discretionary domestic spending has already been cut by half in the past two decades in inflation-adjusted dollars; in actual dollars it is the same as 2001 and set to drop. What we have now from the federal government compared to the 1970s or 1980s is skeletal. And that has big consequences for the states and cities and their residents because federal support they used to rely on has disappeared.

  7. - wordslinger - Monday, Aug 1, 11 @ 9:40 pm:

    The Economist is not conservative? The word has lost all meaning in some circles. Barry Goldwater and William F. Buckley were conservatives. Joe Walsh and Rush Limbaugh are not.

    How’d you like to be John Boehner? He’s got the toughest job in show business trying to run that juvenile crowd. Under the circumstances, I think he’s done pretty well. McConnell stepped up, too.

    What recklessness by these Tea Partiers. I was glad to see McCain regained his voice and called them out.

  8. - Plutocrat03 - Monday, Aug 1, 11 @ 10:29 pm:

    The other way to look at is to consider that the liberal wing is seemingly desperate to continue spending vastly beyond the country’s means on nebulous programs with no prospect of paying back the indebtedness.

    Flower boxes, upper-crust residential districts and luxury parks won’t save the city, but the TIFF debt can sink it.

    I don’t get it. Are you advocating spending more money than the government takes in forever?

  9. - Wumpus - Tuesday, Aug 2, 11 @ 8:50 am:

    Oh no, government “worked”.

  10. - wishbone - Wednesday, Aug 3, 11 @ 12:49 am:

    Spending tax dollars raised at another level of government whether municipalities spending state money or states spending Federal money is a major source of our fiscal woes at all levels. Other than to provide some minimal level of services to the poorest states and municipalities the practice should end.

Sorry, comments for this post are now closed.

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