Ryan's Killer Budget Would Kill State Budgets and the Poor

DATA DRIVEN VIEWPOINT: The following is an abridged version of a report from the Center

on Budget and Policy that assesses the impact of Congressman Ryan's budget on state and local budgets.  In a nutshell, the impact would be devastating.  Check it out then go to the original or download the PDF file  http://www.cbpp.org/files/8-8-12sfp.pdf

Deficit-Reduction Package That Lacks Significant Revenues Would Shift Very Substantial Costs to States and Localities 
PDF of this report (20pp.)

By Michael Leachman, Richard Kogan, Vincent Palacios, and Kelsey Merrick

August 8, 2012

http://www.cbpp.org/cms/index.cfm?fa=view&id=3816

Ryan Budget Cuts to State and Local Services Would Be Far Deeper than Cuts Under Sequestration

If it fails to include significant new revenues, a major legislative package to shrink federal deficits would almost certainly make deep cuts in federal funds that support states and localities as they perform many basic public functions, including educating children, building roads and bridges, protecting public health, and providing law enforcement. [snip]

The House-passed budget from Budget Committee Chairman Paul Ryan is indicative of the sort of approach Congress likely would take if it rejects a balanced approach to deficit reduction that includes significant revenues:

§               The Ryan budget would heavily shift costs to states by cutting Medicaid funding.  It would cut federal funding for the federal-state Medicaid program by 34 percent [snip]

§               The Ryan budget would impose deep cuts in funding for a wide range of other state and local services, as well.  

• The Ryan budget also would cut non-defense “discretionary” (i.e. non-entitlement) funding by 22 percent in 2014 [snip]
• If funding for these grants to state and local governments is cut by 22 percent, in line with the cut to overall non-defense discretionary funding, states and localities would lose nearly $28 billion in 2014 [snip]

§               Cuts in funding for state and local governments under the Ryan plan would be much deeper than the automatic cuts (or “sequestration”) scheduled to begin in January.  The BCA not only established caps that will require cuts in funding for defense and non-defense discretionary programs over the next nine years, but also established a mechanism that would require additional cuts — through a process called “sequestration” — in defense and non-defense discretionary funding [snip]

§               The Ryan budget cuts likely would bring funding for state and local services far below historical levels.  By 2021, the Ryan budget would reduce discretionary state and local grants to an estimated 0.6 percent of GDP,less than half the average of the last 35 years.

Cuts of such magnitude would force states and localities to reduce the quality and reach of their basic public systems — their schools, clean water facilities, and law enforcement activities, for example — or raise new revenue or cut other programs to continue meeting these needs.  Either way, the result would be a huge cost shift from the federal government to states and localities.  By contrast, if Congress adopts a balanced deficit-reduction plan that includes significant new revenues, the resulting cost shift to states and localities almost certainly would be far smaller.

Without Revenues, Aid to States and Localities Likely Will Face Massive Cuts

The leaders of both parties, including President Obama, broadly concur that at least $3 trillion in deficit reduction is required over the coming decade (on top of the roughly $1 trillion in cuts to discretionary spending already required under the Budget Control Act) to stop the debt from growing faster than the economy.  This step is necessary because debt that persistently rises relative to the size of the economy is unsustainable and ultimately may pose threats to the nation’s financial stability and longer-term growth.

These leaders have also signaled they believe it is appropriate to avoid major cuts in Social Security and Medicare benefits for current beneficiaries or those near retirement, meaning that any large savings from those programs would not occur until subsequent decades.[1]   In addition, policymakers are unlikely to cut defense spending much if at all below the BCA cap levels.  The strong opposition voiced to the cuts in defense that would occur if the pending sequestration takes effect, and the fact that many policymakers are calling for increases above the BCA cap levels, show how unlikely such cuts are.

As such, there are only two major parts of the federal budget left from which the bulk of the savings in any plan that does not include significant new revenue would have to come:

1.                 Non-defense discretionary programs, that is, programs subject to annual appropriations.  Funding for services administered by states and localities such as transportation, K-12 education, water treatment, and various health care services (as distinguished from Medicaid) accounts for about one-third of federal non-defense discretionary spending.  Many of the remaining non-defense discretionary programs support core federal functions, such as funding for the National Institutes for Health, the Federal Bureau of Investigation, national parks, food safety, and border protection.

2.                 Entitlements other than Social Security and Medicare.  About two thirds of the spending in this category is for programs that reduce poverty and promote opportunity, such as Medicaid, SNAP (formerly known as food stamps), assistance for disabled veterans, and a range of other programs that are targeted to low-income people

[snip]

States Already Are Hurting; More Cuts Would Further Slow Economic Recovery

The Ryan budget’s deep cuts in funding to states and local governments to carry out various functions would come at a time when states and localities already are hobbled by the recession and sluggish recovery.  Further cuts would make it even harder for states and localities to repair the budgetary damage carried by the recession and would assure that state and local cuts continue to be a drag on the national economy’s recovery.

The Great Recession that started in 2007 caused the largest collapse in state revenues on record.  Since bottoming out in 2010, revenues have begun to grow again but are still far from fully recovered.  As of the first quarter of 2012, state revenues remained 5.5 percent below pre-recession levels adjusted for inflation, and are not growing fast enough to recover fully any time soon.

Meanwhile, states’ education and health care obligations continue to grow.  States expect to educate 540,000 more K-12 students and 2.5 million more public college and university students in the upcoming school year than in 2007-08.^a  In addition, 4.8 million more people are projected to be eligible for subsidized health insurance through Medicaid in 2012 than were enrolled in 2008, as some employers have dropped their coverage and people have lost jobs and wages.^b

States have been forced to close enormous budget shortfalls totaling nearly $600 billion since the 2009 fiscal year.^c  The actions that states have taken to close these budget gaps, primarily spending cuts, have imposed a significant drag on the economic recovery.  Since the recession took hold in August 2008, state and local governments have shed 675,000 jobs. [snip]

The Ryan Budget Illustrates Threat to States and Localities of a Cuts-Only Approach

The budget proposed earlier this year by House Budget Committee Chairman Paul Ryan, and passed by the House, illustrates the likely impact on states if federal policymakers do not take a balanced approach to deficit reduction.  Major bipartisan deficit reduction proposals, such as the proposal put forward by a majority of the members of the Bowles-Simpson commission and the proposal issued by a Bipartisan Policy Center task force headed by Alice Rivlin and former Senator Pete Domenici, would raise taxes substantially as well as cutting spending in order to shrink the federal deficit.  The Ryan budget, by contrast, includes no new revenues. 

At the same time, the Ryan budget would impose massive federal spending cuts totaling a whopping $5.3 trillion (not including interest savings) over the next ten years.  Most of Ryan’s budget cuts would come from repealing the Affordable Care Act (ACA), cutting non-defense discretionary programs deeply, and cutting Medicaid and other programs that reduce poverty and inequality.[2]

The Ryan plan would cut non-defense discretionary programs nearly $1.2 trillion below the already tough annual budget caps imposed on these programs by the Budget Control Act.  Under the Ryan budget, funding for these programs would be cut by an additional 22 percent in 2014 and later years beyond the cuts already needed to comply with the BCA caps.

If grants to state and local governments were cut by the same 22 percent that non-defense discretionary funding as a whole would be reduced, then states and localities would lose nearly $28 billion in 2014 alone.  Over the nine years through 2021, states and localities would absorb a cumulative federal funding cut of $247 billion. [snip]

In addition to imposing deep cuts to non-defense discretionary programs, the Ryan budget also imposes a number of other severe cuts, including some with major implications for state budgets.  These include cutting federal Medicaid funding by 34 percent by 2022 (on top of repealing the Affordable Care Act’s Medicaid expansion) and by still larger amounts in subsequent decades.  As the Congressional Budget Office explains, the magnitude of the Medicaid and Children’s Health Insurance Program cuts in the Ryan budget “means that states would need to increase their spending on these programs, make considerable cutbacks in them, or both.”[3]

Ryan Budget Cuts Much Deeper Than Sequestration

The Budget Control Act (BCA) established annual funding caps that will necessitate significant reductions in both non-defense and defense discretionary spending.  The BCA also requires a further round of cuts known as “sequestration,” starting in January 2013.[4]  Much attention has been paid to the effects of sequestration, but the Ryan budget would impose cuts far deeper than those scheduled under sequestration.

Broadly speaking, for 2013 sequestration will mean about an 8.4 percent cut in most affected non-defense discretionary programs, including most discretionary grants to states and localities (a major exception is transportation programs, which are not included under the BCA caps).  In subsequent years, the percentage cut made by sequestration (relative to the funding levels under the BCA caps) will decline gradually.  In 2014, it will be about 7.3 percent; by 2021 it will be about 5.5 percent.

Those cuts are substantial, but the Ryan budget would cut non-defense discretionary programs much more deeply — by about 22 percent below the BCA caps, starting in 2014 — and would not diminish over the next decade.

That is, in 2014 the overall cuts in funding for non-defense discretionary programs under the Ryan budget would bethree times as deep as the cuts scheduled under sequestration.  In later years the difference is even larger.  States and localities are justifiably worried about sequestration’s major federal funding cuts; but if federal policymakers enact a deficit reduction plan that relies entirely or almost entirely on spending cuts, the damage to state and local aid likely will be much more severe.

Ryan Budget Would Cut Discretionary Aid Far Below Historical Levels

The Ryan budget likely would cut discretionary spending so heavily that this funding would fall far below historical levels over the coming decade.

Even the current caps on discretionary spending under the Budget Control Act (BCA) would cut federal discretionary funding for states and localities significantly as a share of the economy. Assuming the cuts to state and local aid are proportional to the cuts in non-defense discretionary funding overall, they would bring federal funding to states and local governments through discretionary programs to the lowest levels in four decades, measured as a share of the economy — even without sequestration.

As difficult as the current spending caps will be for states and localities, the Ryan budget would impose much deeper cutbacks.  Since 1976, federal discretionary funding to states and localities has averaged 1.4 percent of the nation’s Gross Domestic Product (GDP).  By 2021, the Ryan budget would reduce this funding to about 0.6 percent of GDP, less than half the historical average and well below the BCA caps.  (In 2021, under the BCA caps, discretionary funding to states and localities would be about 0.9 percent of GDP.)

Deep Cuts to Discretionary Funding Would Shift Costs to States and Localities

Federal discretionary grants to states and localities finance a number of national priorities.  More than a quarter of federal discretionary grant funding for states and localities supports transportation projects — mainly road and bridge construction, planning, and repair.  Another quarter goes to education.  Thus, more than half of federal discretionary grants to states help pay for education or transportation projects — two functions of state and local governments that are basic building blocks of the future economy.

The remainder of federal discretionary grant funding helps states and localities undertake a wide range of other important functions, including protecting waterways from sewage contamination, protecting public safety, reducing homelessness, revitalizing run-down neighborhoods, providing technical job skills training to community college students and others, and responding after disasters.

To be sure, states and localities bear a heavy responsibility themselves to finance these areas of spending, and even after years of state and local budget cuts, state and local taxes still provide the lion’s share of the funding for most of these services.  But state and local tax revenue remains depressed by the recession and is unlikely to recover soon, much less to grow anywhere near fast enough to make up for substantial new federal cutbacks.

Cutting this funding deeply — as would likely occur under the Ryan budget — would force states and localities to lay off people who perform these functions and to cut spending in these areas in other ways, or else to raise substantial new revenue in-state to continue addressing these needs.  Either way, the result would be a large cost shift from the federal government to states and localities.

Transportation

Over a quarter (28 percent) of federal discretionary grants to states helps build and improve roads and other transportation systems.  These projects are crucial to the nation’s economic health, since businesses require efficient transportation systems to get their products to market in a timely way, and workers use these systems to commute to their jobs.  Cutting federal support for these projects would shift costs to states and localities, which would have to choose between raising more revenue in-state or reducing their future transportation investments and absorbing the indirect cost to their economies and quality of life.

§               Road and bridge planning, construction, and rehabilitation.  Some 73 percent of federal aid for state transportation programs goes to help states plan, build, and make major repairs to their roads and bridges.  These programs help assure that the National Highway System, which carries about 85 percent of the vehicle miles driven nationally each year, continues to efficiently transport goods and people as the economy grows over time.[5]

§               Public transit.  Federal grants for public transit have provided an average of $8 billion a year over the last decade to help plan, upgrade, and (in small urban areas) operate bus and rail transit systems and other forms of public transportation.  Other programs help people who have disabilities or are elderly to access public transit, promote job access for low-income commuters, and develop pathways for cyclists and pedestrians.

Ryan Budget Would Impose Additional Cuts to Transportation Aid

The Ryan budget would impose substantial cuts to highways and other transportation aid for states and localities.  These cuts would come on top of the large cuts to other forms of state and local funding discussed in this paper.

Unlike other discretionary grant funding, funding for state and local transportation projects such as building highways and new airport runways is not affected by the spending caps imposed last year under the Budget Control Act (this funding is outside the caps), and is exempt from sequestration.  As such, estimating how much states and localities would lose in transportation funding requires a different methodology than other forms of discretionary funds for which the BCA spending caps provide an appropriate baseline.

In 2014, the Ryan budget would reduce discretionary aid to states and localities for transportation projects by about 20 percent — about $12 billion — relative to 2012 levels adjusted for inflation.^a Over the next nine years, the Ryan budget would require about $194 billion in cumulative cuts to state and local transportation aid, relative to current levels adjusted for inflation.

These cuts would come on top of the Ryan budget’s cuts to other forms of discretionary spending, which total $247 billion through 2021, relative to the current BCA spending caps.

^a See methodological appendix for a description of how these estimates were developed.

§               Airports.  In 2011, these funds financed over 2,000 projects at airports around the country to improve runways and to accommodate growth in flights, passengers, and the size of aircraft.[6]

Education

Another quarter of the value of federal discretionary grants goes to help states educate children.  These funds mostly end up with elementary and high schools, primarily to help them educate children from low-income families and children with learning disorders and other types of disabilities.  The funds also go to agencies that provide preschool education to low-income children through the Head Start program, and to school districts to help them train better teachers and reduce class sizes.

If these federal grants are reduced sharply, as they would be under the Ryan budget, states and local governments will be forced to choose between increasing their own spending to protect their schools or allowing their schools to take the financial hit, which could damage the quality of their education systems.

Cutting this funding would hurt high-poverty schools the most, since the federal aid is targeted disproportionately to those schools.  That could undermine education reform efforts in many states and deepen already disturbing inequities in the educations received by children from families of varying income levels.  Heavy cuts to Head Start would deepen these problems further by allowing many thousands of low-income children nationally to start kindergarten less prepared than they otherwise would be. [snip]

Major education programs threatened with deep cuts under the Ryan budget include:

§               High-poverty schools (Title I).  Title I provides financial assistance to schools with high numbers or percentages of children from low-income families, to help these children meet state academic standards.  Some 56,000 schools nationally received this funding in 2009, helping them educate 21 million children that year.[8]

§               Special education (IDEA).  Funding through the Individuals with Disabilities Education Act provides federal support to schools to help them educate children with learning disorders, speech impairments, and other disabilities.  Some 6.5 million children nationally received specialized learning assistance through this funding in 2010.[9]

§               Pre-school programs provided through Head Start.  Head Start promotes school readiness among at-risk children up to age 5 by enhancing social and cognitive development through education, health, nutritional, and other services and by engaging families in children’s learning. Early Head Start serves children from birth to age 3 and some pregnant women.  Together, these programs served 904,000 children nationally in 2009.[10]

§               Improving teacher quality.  The U.S. Department of Education provides grants to states and school districts to improve the quality of teaching in their schools.  School districts with the highest poverty levels receive a disproportionately large share of the funds.  Most of the grant money is spent on training programs to help teachers be more effective and to reduce class sizes (by employing more teachers).  School districts used this funding to pay the salaries of over 14,000 teachers nationally to reduce class sizes in the 2011-12 school year.[11]

§               Impact Aid.  These funds provide support to school districts near military bases, Indian lands, or other types of property that cannot be taxed by the school district.  In 2008, over 900,000 students attended schools that received this aid.  Nearly 40 percent of them were children from military families.[12]

Housing and Community Development

Another 20 percent of discretionary grant funding to states and local entities goes to housing and community development programs.  Most of this funding is used to help low-income renters find housing they can afford.  The biggest program in this category, known as “Section 8,” is really two programs, one of which provides low-income renters with vouchers they can use to help them afford the rent on modest apartments, and the second of which directly funds private property owners to offer units to low-income people at affordable rental charges.  The category also includes funding for energy assistance payments that help low-income people pay their heating and cooling bills; community development programs that — among other things —revitalize blighted neighborhoods and build public infrastructure such as sewer systems and recreation centers; and public housing.[snip]

The major housing and community development programs threatened with large cuts under the Ryan budget include:

§               Rental assistance for low-income people.  The Housing Choice Voucher program, the principal component of “Section 8” provides vouchers that nearly 2.2 million low-income families use to defray part of the rent on a modest apartment or other home in the private retail market.  Roughly half of the low-income households benefiting are headed by seniors or people with disabilities; most of the rest are families with children.

The other “Section 8” program, the Project-Based Rental Assistance (PBRA) program, provides rental assistance payments to private owners of 1.2 million units of affordable housing.  Two-thirds of the residents of these housing units are low-income seniors or people with disabilities.[13]

§               Assistance for paying heating or cooling bills (through the Low Income Home Energy Assistance Program, or LIHEAP).  Many low-income people receive help paying their home energy bills through this program.  In 2008, 6.9 million people nationally received this assistance.[14]

§               Community Development Block Grants.  States, cities, and counties use this funding to revitalize deteriorating neighborhoods, improve water and sewer systems, and build community centers, youth centers and libraries, and a range of other public infrastructure projects.[15]

§               Public Housing.Public housing provides affordable homes to 1.1 million of the nation’s poorest residents.  More than half of these households are headed by seniors or people with disabilities.

Health and Environment

Some 13 percent of discretionary aid to states and localities funds states to provide nutrition to low-income newborns and expecting mothers, protect waterways from sewage contamination, prevent and treat addictions, provide health care to people with limited access to it, and do a range of other things that protect the public’s health or the environment.

Deep cuts to this funding would force states and localities to choose between using more of their own funds to sustain these efforts and allowing the programs to diminish.  If states and localities replaced the lost funds with their own revenues, the cost shift would be direct.  [snip]

§               Nutrition support for new and expecting mothers, and for their young children (WIC). The Special Supplemental Nutrition Program for Women, Infants, and Children provides nutritious food and nutritional education (including breastfeeding education and support) to new and expecting low-income mothers, including those with children under age 5.  In an average month in 2010, the program — delivered by thousands of agencies and health clinics across the country — served over 2 million low-income women and 7 million infants and children.  

§               Clean Water State Revolving Fund. Every state operates a revolving loan program — paid for mostly with federal money — that funds wastewater treatment projects, sewer projects, and other infrastructure that protects and restores the health of rivers, lakes, and estuaries.  In 2009, these funds allowed for agreements to support nearly 2,000 clean water projects and over $5 billion in loans.  

§               Mental health and substance abuse services.  These grants help states prevent and treat alcohol and drug abuse and provide community mental health services to adults and children with serious mental illness.  In 2008, over two million individuals attended substance abuse facilities that received federal funding; over six million received federally supported mental health services.  

§               Community Health Centers.  These non-profit facilities provide primary-care medical services to people with limited access to health care.  In 2010, more than 8,000 centers nationally provided medical care to over 19 million patients, many of them poor.  

Workforce

Another 6 percent of federal discretionary funding provided to states and localities goes to help state and local governments train, protect, and build stronger workforces. [snip]

§               Training and Employment Services.State and local governments receive these grantsto provide job search and placement assistance, occupational training, and career counseling to unemployed adult workers and to low-income youth who need help building their skills.[21]

§               Child care subsidies for low-income working parents. These funds subsidize child care for low-income parents so they can find and keep a job.  In 2010, the subsidies helped 1 million parents find child care.   

§               Adult and vocational education. Adult education classes help people get the basic skills they need to be productive as workers (and in their families and communities); for example, these classes may help people learn to read, do basic math, get a GED, or speak English.  In 2009, 2.4 million people participated in classes to learn these sorts of basic skills.  Vocational education funds pay for technical and vocational education for high school and community college students, giving them skills they can carry into the workforce. 

§               Unemployment Insurance administration.  These funds help finance the administration of state unemployment insurance programs.

Public Safety and Disaster Response

States and local areas hit by natural disasters such as hurricanes, earthquakes, floods, wildfires, and tornadoes often seek help from the federal government.  [snip]

Federal discretionary funds also help states, cities, and other local governments hire police officers.  Big cuts in funds to hire police officers would shift more of the cost of hiring these officers to state and local budgets.

§               Disaster relief.Last year, the President declared 99 major disasters, which enables federal disaster assistance to be provided for states, localities, and affected individuals.[24]

§               Justice Assistance Grants (JAG).  Most of these grants go to help local law enforcement agencies train police officers, supply them with police cars, bullet proof vests, and other equipment, cover overtime, and deter crime. The rest helps states and localities operate other aspects of their criminal justice systems, including prosecuting criminals, taking other actions to reduce crime, and protecting victims and witnesses.[25]

§               Funds to hire state & local police officers (COPS).  These funds help state and local law enforcement agencies hire police officers.  In 2011, these grants helped to fund or maintain over 1,000 law enforcement positions nationally.[26]