States expect budgetary fallout from ‘supercommittee’ failure

Funding cuts for school lunches, home energy assistance, child support enforcement, HIV care, Race to the Top grants and other government programs will come quicker than advertised following the failure this week of the congressional “supercommittee.”

In the malleable world of federal budgeting, members of Congress cast the breakdown as likely having little to no effect on federal spending over the coming year. The deadline for cuts, lawmakers on both sides of the aisle noted, is in 2013, and the two sides could agree before then to a new mix of cuts.

But in state capitals, where legislatures are bound by requirements to balance budgets, the committee’s failure cocked a trigger on $1.2 trillion in cuts that must, by law, be built into spending plans that governors will begin releasing within weeks.

Lawmakers in Annapolis and in Richmond began meeting in recent days to grapple with the potential effects: State budgets that are required to be approved next spring, and that will take effect in July, will overlap with the federal budget that is scheduled to contain the deep cuts. In Virginia, which budgets over a two-year cycle, the full effect of future cuts could be spread out and felt next summer.

What’s more, lawmakers in Maryland and Virginia say they fear preemptive action to slow or cancel contracts or reduce staff by the Department of Defense, which must account for more than half of the prospective cuts, will add an untold drag on the two states’ economies, holding back wages, employment and therefore state tax revenue to fund everything else.

“We’re an unusual state in that we certainly, no matter how you look at the numbers, we’re first, second or third as far as military funding,” said Virginia House Majority Leader Kirk Cox (R-Colonial Heights) . “If the automatic cuts go into place, they’re 50 percent defense. That certainly affects Virginia dramatically.”

The situation also prompted a heated reaction from Gov. Robert F. McDonnell (R) on Tuesday, after the committee gave up.

“We are mortgaging the future generations of this country by failing to realize we have to balance our budget and make ends meet,” McDonnell said in Richmond after a meeting with economic advisers. “We do it in Virginia and 48 other states do it as well. . . . The day of reckoning is here. The bill is due.”

At a briefing last week in Annapolis, Warren Deschenaux, the Maryland legislature’s chief budget analyst, warned that the state was similarly exposed when it comes to defense spending.

Maryland has more than 42,600 direct federal defense jobs, and the Defense Department paid nearly $1.9 billion in wages to employees residing in Maryland last year.

Robert Kurtter, managing director in public finance at Moody’s Investors Services in New York, said it was too soon to determine whether Maryland or Virginia would suffer disproportionately because of the supercommittee’s failure, or if the cuts could affect the states’ credit ratings.

But Kurtter said the two are certainly among a small group of states that could be most harmed by defense-related cuts. Moody’s placed Maryland and Virginia on watch for a possible credit downgrade in July, saying that if the rating agency downgrades the U.S. government’s debt, the two states’ long-held, top-flight credit ratings would also likely be downgraded.

Moody’s and other ratings agencies have warned that compared with other AAA-rated states, Maryland and Virginia rely far more heavily on federal employees and federal procurement contracts to support their states’ economies.

Nearly $9.3 billion, or 31 percent, of Maryland’s budget this year comes from federal funding.

Deschenaux said a significant amount of the planned automatic reductions occur to programs that fund local governments or go directly to individuals for assistance.

Maryland’s education department could be hit hardest, with $62 million in cuts to special education, school meals and other programs by 2014.

Among the many other areas that could face cuts: low-income home heating assistance, child support enforcement, HIV Care Formula grants, Section 8 housing assistance payments and vouchers, and social services block grants.

Combined, the annual cuts in Maryland could range from $135 million to $158 million.

Virginia officials say they have not tallied the potential losses, but by looking at individual programs, education could also take the biggest hit.

The state estimates that it could lose $82.5 million in K-12 funding that supports such things as school lunch and breakfast programs and special education.

Virginia’s Department of Health and Human Resources faces potential cuts of $62.6 million, including $9.2 million in nutrition programs for women, infants and children and $2.5 million in Ryan White Act HIV/AIDS drugs and services.

Virginia’s Department of Social Services could see reductions of about $19.7 million, including about $8 millionin a low-income home energy assistance program.

The Department for the Aging, which could lose about $3.7 million, estimates that 121,158 fewer meals could be delivered to the homes of elderly residents.

For both states, about a quarter of the budget year that begins in July will overlap with the beginning of the planned federal cuts.

As bad as the cuts might be, Maryland Gov. Martin O’Malley (D) said he was a little relieved. An agreement by the supercommittee could have madethings worse.

The automatic spending cuts do not affect federal Medicaid contributions and most transportation aid to states is also off limits. Those two pots typically make up the bulk of federal aid to states.

“They could have done as much damage to us if they had succeeded,” O’Malley said.

Staff writer John Wagner contributed to this report.

Aaron Davis covers D.C. government and politics for The Post and wants to hear your story about how D.C. works — or how it doesn’t.
Laura Vozzella covers Virginia politics for The Washington Post.
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