State and local government officials who have spent the past several months bracing for the worst from Washington's deficit-reduction negotiations predicted yesterday that the budget agreement would drain their state coffers by a total of $14.6 billion over the next four years.
Increased federal taxes on alcohol, gasoline and cigarettes would combine with new Medicare responsibilities to depress consumer spending, thus lowering state tax income, and will create a corresponding crunch on state budgets, the officials said.
The budget plan, which had been under fire on Capitol Hill by Republicans and Democrats and failed to pass the House early this morning, "simply exports the federal government's fiscal crisis to 50 state governments," said Illinois House Minority Leader Lee Daniels, the president of the National Conference of State Legislatures.
"The cumulative effect of the plan will be to put further pressures on states to provide services, while simultaneously restricting their ability to raise the revenue they will need to provide these services," Daniels said.
Federal rollbacks that trickle down to the next level of government are not a new problem for states, but each time they occur they threaten excise tax-dependent legislatures, who appeal to Capitol Hill for relief.
State legislators estimate Maryland would lose about $154 million and Virginia $216 million in revenues due to increases in excise taxes alone.
Figures were not available for the District.
California registers the biggest potential loss, $916 million, more than two-thirds of it from fuel tax increases.
Altogether nationwide, excise taxes would amount account for $7.6 billion of the states' losses. Extending the Medicare payroll tax to state employees would account for $5.2 billion more.
"This is probably the biggest single encroachment on state revenues the federal government has ever enacted," said Chris Zimmerman, NCSL's fiscal analyst.
The gasoline tax increase would have the largest potential impact on state budgets, ahead only of the limitation on deductibility of state and local income taxes, which state governments estimate would cost them about $6 billion.
The plan is "anti-progressive" and would hurt the states' ability to shoulder the burdens the federal government plans to shift to them, they said.
Frank Shafroth, federal relations director for the National League of Cities, said the agreement "will either force local taxes to increase to pay federal taxes, or force cuts in local programs to pay federal taxes."
Shafroth said the shifting revenues from the federal to the state level and back create a "windmill" effect for state and local budget officers, who feel that a laudable goal -- deficit reduction -- is being achieved at their expense.
"The big picture is, something's got to go," Shafroth said. "And when Oct. 19 comes, we will be there pushing for whatever the package is."