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California Weighs Impacts of Debt Ceiling Cuts

Posted on Wednesday, August 3, 2011 9:36am

Congress has raised the federal debt ceiling – and maybe lowered the boom on some state programs in California. The debt ceiling compromise bill cuts more than 2-trillion dollars in federal spending. Some of that’s expected to come out of funding for states for everything from healthcare to high speed rail.

Nobody knows what the federal spending cuts will mean for states … at least, not yet. The 12-member congressional committee that decides what gets cut and when hasn’t begun its work. But Brian Sigritz with the National Association of State Budget Officers says you can guess what’ll happen. “The likelihood is that states will see reductions in federal funds going down to the state level. It’s just a matter of what programs will be impacted and the timing of the cuts,” he said.

Most states rely on the federal government for about a third of their budgets. The largest chunk of that money goes to Medicaid – the federally funded healthcare program for low-income residents. We call it “Medi-Cal” in California.

Brian Sigritz says if the congressional committee looks to Medicaid for cuts, the state will feel it. “States have already been facing increased enrollment, higher spending costs associated with Medicaid – so any kind of federal funding cuts in Medicaid would definitely have an impact,” he said.

California is counting on 79-billion dollars from the feds this fiscal year. Jason Sisney with California’s non-partisan legislative analyst says healthcare is just one of a myriad of programs that the federal government supports, saying, “health and education programs, high speed rail, higher education, research funding – all of these things that the federal government funds in California and other states they are potential items to go on the cut list.”

Despite the wide reach of federal money, Sisney doubts California will suffer much if it loses some of it. The reductions won’t take effect for a couple of years – and they’ll be phased in over a decade. By then, the economy’s expected to be stronger.

Jason Sisney thinks the bigger deal here is that the debt ceiling deal cuts signal the end to federal bail-outs. “There is not likely to be federal budgetary assistance to help the state or local governments get out of their current fiscal problems,” he said. “That time is over.”

In the last few years California lawmakers used 40-billion dollars in one-time federal stimulus dollars to back-fill budget cuts to education and other vital programs. Jason Sisney with the Legislative Analyst warns that without that federal windfall, California will be forced to make tougher decisions when it tries to balance its budget in the coming years.

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