This era of uncertainty is familar by now – states have been dealing with a volatile economy and testy federal government since the federal stimulus program ended in 2010 and the nation’s economic recovery continued along slowly. But what makes budget writing and planning particularly irksome this year is that Congress likely won’t come to an agreement on whether to keep 2014 spending caps for defense and non-defense discretionary funding until the current continuing resolution expires on Jan. 15.
If the 2014 caps remain ($498 billion for defense and $469 billion for non-defense), that would mean a reduction in defense funding from 2013 and flat funding for non-defense. The uncertainty means states will have to plan on stagnant or reduced funds non-defense funds for things like state-run grant programs or Medicaid while hoping for something better.
“This uncertainty is a way of life now with the governors,” said Dan Crippen, executive director of the National Governor’s Association at a media lunch held this week in Washington, D.C.
The NGA is pushing Congress to avoid making federal budget cuts that burden states in the form of cost shifting and unfunded mandates. Funding for special needs programs is especially emblematic of this issue, Crippen said that the law requires that the programs provide certain specific services, “yet the appropriations, which have never been fully funded, are going down precipitously. So you’re trying to cover the same number of kids, the same service for special needs children, with a lot less money.”
Barry Anderson, NGA’s deputy director, said there was one reason to be optimistic: neither Republicans nor Democrats are happy with the spending caps for the 2014 fiscal year, which started on Oct. 1. Republicans think the defense cap is too low and Democrats don’t like the nondefense cap, he said. But, he added, neither side is willing to increase a cap, which could increase the federal budget by $100 billion, without finding a way to pay for it.
That optimism doesn’t help planners who are working now to draft their state spending proposals in time for January, when most state legislatures start up. A year ago, states faced a similar uncertainty with the New Year’s Eve fiscal cliff negotiations that pushed back the sequester until Mar. 1, 2013. This year, the timing is even more pressed as Congress is unlikely to act until after most legislatures have started their 2014 sessions.
“It’s so hard to try to manage the state governments when you have no idea about how much money is going to come out of this,” Anderson said. “What the governors would really like is, can you make up your mind and put something in place so we can do planning on our side?”
In the next few years that pressure will ease somewhat. Beginning in the 2015 fiscal year, spending caps will increase annually (albeit never by more than $15 billion in defense and by $14 billion in non-defense) through 2023.
