With the federal government swimming in a sea of red ink, states can be grateful that their own financial pictures have gotten rosier because there is little extra money to trickle down from Washington, D.C.
President Bush on Monday (Feb. 6) unveiled a $2.77 trillion budget proposal for the 2007 fiscal year that squeezes savings from an array of domestic spending programs — including a number of programs that benefit states and local governments — while boosting funding for homeland security and national defense.
U.S. Health and Human Services Secretary Mike Leavitt, a former Utah governor, said Monday that the federal government can't afford to give as much money to states as it once did. A few years ago, states faced unprecedented budget shortfalls and needed federal help, but now states are in better shape financially while the federal government "is not in a position to help out states as much as before," Leavitt said.
As part of Bush's campaign to halve the federal deficit — expected to reach an all-time high of $423 billion this year — by 2009, he has proposed a second round of cuts to entitlement programs, government assistance programs for which spending automatically increases or decreases according to formulas.
The cuts largely target the federal Medicare program for the elderly but include $13.6 billion in federal spending reductions for the state-federal Medicaid program for the poor over the next five years.
Congress last week (Feb. 1) passed the first cuts to entitlements since 1997, including a $6.9 billion reduction over five years in Medicaid, the program that pays health care costs for 53 million poor and disabled Americans.
Bush's budget would cut entitlements by $65 billion over five years, the largest chunk of savings coming from a $36 billion reduction in spending for Medicare, the federally funded health care program for the elderly.
"In the long-term, the greatest challenge to our nation's fiscal health comes from unsustainable growth in entitlement programs. ...We do not need to cut these programs, but we do need to slow their growth," Bush said in his budget.
The administration also hopes to squeeze $15 billion in savings by consolidating or eliminating 141 federal programs. More than one-fifth of those cuts — $ 3.5 billion — are in education, including money for the arts, student loans, early education and adult literacy.
Congress cut or eliminated 89 of the 154 programs Bush targeted for savings last year, and several of the survivors — such as loans for low-income college students — are back in the crosshairs this year.
Overall, grant funding to state and local governments would decrease, although not by as much as Bush proposed last year, said Iris Lav, deputy director of the Center on Budget and Policy Priorities, a Washington, D.C.-based group that focuses on policies that affect the poor.
"It's not a steep cut. But this budget continues the erosion that's been going on for six years," Lav said.
Bush also has called again for Congress to make permanent the income tax cuts passed in 2001 and 2003 and is proposing a range of additional cuts and tax breaks.
New Mexico Gov. Bill Richardson (D), an outspoken critic of the Bush administration, on Monday characterized the proposed budget as full of "recycled ideas and empty promises."
"The president is shifting all responsibility to the states, shifting health care, education and basically providing a bare-bones budget. So states will now become the true laboratories of innovation because the federal budget is not particularly helpful," Richardson said.
Bush's proposal, which maps spending for the federal fiscal year that begins Oct. 1, now goes to Congress. In an election year, controversial spending cuts could face tough scrutiny from lawmakers seeking re-election.
Some elements of Bush's budget proposal that could impact states include:
- Medicaid - Bush's spending plan includes $100 million annually to fund a new program called Cover the Kids that is designed to boost enrollment for children in Medicaid and the State Children's Health Insurance Program (SCHIP), which covers 6.1 million low-income children who don't qualify for Medicaid. It also would change arcane rules governing the flow of Medicaid money between Washington, D.C., and state capitols to keep states from using accounting ploys to get larger shares of federal matching funds. ( Click here to read more ).
- Education - The overall federal education budget would be cut by $3.1 billion or 5.5 percent from 2006 levels by eliminating 42 education programs. The president also wants to launch new initiatives to strengthen math and science achievement and reform America's high schools. ( Click here to read more ).
- Homeland Security - The administration proposed cutting homeland security grants to cities and states by about $400 million, to about $2.57 billion. As part of these cuts, the agency would redirect money to grants that focus more on risk, rather than a high flat rate for every state. Programs for firefighters and police terrorism prevention would be eliminated or reduced. Also, starting in 2007, states must coordinate their emergency communications with the federal government to receive homeland security grants.
- Illegal Immigration - Funding would increase for programs aimed at illegal immigration including: a research service that tracks down citizenship inquiries for state and local authorities and a partnership that trains law enforcement officials in immigration law. In a boon to Southwestern states, the Border Patrol would add 1,500 new agents.
- Energy - With heating and electricity prices soaring, the federal budget proposal would cut $91 million from state grants to help low-income citizens make their homes more energy-efficient — a 29 percent reduction. Research into some new energy technologies is one of the few winners this year, with a proposed increase of $66 million more for solar energy technology, $41 million to develop hydrogen fuel and fuel cells, and $29 million for biofuel research. Other technologies did not fare so well: $23 million to improve geothermal energy would be eliminated along with $1 million for hydropower.
- Environment - State-run environmental programs would be cut by a total $416 million, including a proposed $199 million reduction in money for building sewage and water treatment plans and $35 million less for clean-air programs, said Steve Brown, executive director of the Environmental Council of the States.
- Transportation - States would not see their road and bridge building money cut under the president's budget. Funds for highway building, which come from federal gasoline taxes collected in the states, would rise 9.6 percent to $39.9 billion, according to the American Association of State Highway and Transportation Officials. However, the proposed budget would reduce funding for Amtrak by $394 million and eliminate a $287 million program that lends money for rail improvements.
- Toll roads - The president's budget also proposes a $100 million pilot program for five states to study new ways to pay for future transporation demands, especially through tolls. The program is necessary because of predictions that the federal gas taxes used to pay for road and bridge projects will not keep pace with needs, according to the U.S. Department of Transportation.
Staff Writers Mark K. Matthews, Eric Kelderman, Kavan Peterson and Daniel C. Vock contributed to this report.