States Can Survive a (Short) Sequester

States Can Survive a (Short) Sequester

By Lou Cannon - February 28, 2013

Although you’d never know it, given the outpouring of alarms from the White House, the sky won’t fall on the states Friday if $85 billion in automatic federal budget cuts take effect.

In a determined if not entirely accurate propaganda effort, the White House has provided the media with reams of state-by-state breakdowns showing the supposedly dire impact of the so-called sequester on teachers and schools, work-study jobs, Head Start, job-search assistance, military readiness, law enforcement, child care, vaccinations, public health, nutrition for seniors, clean air and water quality and programs to reduce violence against women. According to the White House, every one of these awful consequences stem simply from the refusal of Republicans in Congress “to ask the wealthy to pay a little more by closing tax loopholes.”

It’s actually a bit more complicated than that.

For starters, the White House doesn’t mention that the dreaded sequester was the proposal of none other than the administration, as documented by Bob Woodward in his 2012 book, “The Price of Politics.” The White House did not dispute authorship at the time, when the sequester was seen as a useful doomsday device that would force Democrats and Republicans to compromise on spending cuts and tax increases.

As Los Angeles Times columnist Doyle McManus wrote recently, the sequester was “deliberately designed to be stupid.” Democrats believed Republicans would never permit it to take effect because half the reductions come from defense spending. Republicans were convinced that Democrats would not accept across-the-board cuts in discretionary domestic programs. To avoid these consequences and make a dent in a national debt that now exceeds $16 trillion, the two sides were supposed to sit down and write a sensible bill that balanced the budget with mild changes down the road in entitlements (such as gradually raising the retirement age) and small, broad-based tax increases.

This didn’t happen. The center that the president hoped to create never formed, much less held. The Democratic left proved unwilling to make even minor changes in the expensive entitlement programs of Medicare, Medicaid and Social Security, which were exempted from the sequester. The Republican right reluctantly accepted a mild tax increase on the wealthy in January as an alternative to raising taxes on everyone but now balks at additional taxes. That left the sequester, an awkward tool for reducing the budget by $1.1 trillion over 10 years with cuts of just below 8 percent on defense and 5 percent on domestic programs.

However, though the sequester is a blunt budget-cutting instrument, it’s relatively kind to the states. Scott D. Pattison, executive director of the National Association of State Budget Officers, points out that 82 percent of federal assistance to states is exempt from it. “As bad an idea as the sequester may be, states fare better under it than under many other budget scenarios,” Pattison said.

Governors and state legislative leaders of both parties fought hard for the exemption of Medicaid, the federal-state program that provides health care to the poor and disabled. Medicaid rolls have soared since the onset of the Great Recession and forced states to trim the program at the margins. The Obama administration endorsed the exemption because Medicaid expansion is a key element of the president’s health care reform plan, the Affordable Care Act.

Because so much federal aid is exempted and state revenues have risen to their highest level since 2008, most states should be able to balance their budgets this year, as the constitutions of all states except Vermont require. Even in California, where fiscal improvidence approaches an art form, the state budget is balanced because voters approved a tax-increase initiative proposed by Gov. Jerry Brown. A Department of Finance official said this week that the budget remains on track to be balanced despite the sequester.

The Obama administration offers an especially calamitous picture of what will happen to disadvantaged schoolchildren across the country under the sequester, saying that 2,700 schools and 1.2 million students will be harmed. That could turn out to be true if Congress and the president persist for the rest of 2013 in refusing to strike a political compromise, but it’s not true for the present school year. Funding for the two programs that affect these students -- Title I aid to disadvantaged students and special education under the Individuals With Disabilities Education Act -- are provided a year in advance.

While the White House tries scare tactics, Republican leaders trivialize the cuts as little more than a walk in the park. That’s silly and potentially dangerous. Leaving aside potential harm to national security, the sequester is at best a clunky device that, by imposing across-the-board cuts, penalizes lean and well-run programs and rewards those that have some fat on the bone. North Dakota Republican Gov. Jack Dalrymple (pictured) made this point at the National Governors Conference last weekend, saying that “the worst thing is to have no flexibility.”

On Wednesday the nonpartisan National Conference of State Legislatures in Denver issued a statement saying that states remain “frustrated by the continuing uncertainty from Washington,” citing this sequester and a second financial hurdle on March 27, when the government decides either to pass a budget or fund operations by continuing resolution, as it has the past three years. “The bulk of states end their legislative sessions in the spring, and will face the near-impossible challenge of balancing their budgets without knowing how much money to expect,” the NCSL statement said.

It will be more of a challenge for some states than others. Michael Bird, legal counsel for the NCSL in Washington, points out that states with heavy concentrations of military bases and a large number of civilian employees of the Defense Department will be most severely impacted. He lists Alaska, California, Connecticut, Hawaii and Maryland among the hardest hit states. Pattison would add New Mexico, with its extensive federal laboratories, to this list. He said Maryland would have to cut some $300 million from its budget by October, hardly an insignificant amount, if the sequester persists.

The great unknown of the sequester is whether its inflexible budget cuts, augmented by White House predictions of calamity, will panic the markets or discourage business investment and in the process derail the nation’s fragile economic recovery. State revenues in many states have just reached pre-recession levels, observes Bird, who worries about the “psychological effect” of the sequester on the economy. If the economy falters, he said, “it would blow state budget projections to smithereens.”

But the sky is not falling -- yet. State programs will continue to operate when the sequester takes effect Friday. Airplanes will still fly, and the meat you eat will be inspected. Schools won’t close. Congress and the White House have at least until March 27 to avert any of these dire forecasts and replace the sequester with a balanced and flexible program of budget reductions. All it takes is the shared willingness of the president and Congress to do it. 

Lou Cannon, who is traveling in Scotland, has written about the campaign for RealClearPolitics.

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