Trump Budget Sticks States With $44 Billion Shortage in 2018: Report

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By J ennifer McLoughlin and Che Odom

President Donald Trump’s proposed budget would leave states and local governments looking for ways to make up $44 billion in combined cuts, equivalent to more than 5 percent of state general-fund budgets.

That’s according to a June 13 report by the Center on Budget and Policy Priorities, a left-leaning think tank based in Washington.

The amount would grow to $453 billion by 2027, hurting lower- and middle-income residents most, the group’s report said.

“More than half the states already have been struggling to close gaps between ongoing costs and revenues in their own budgets; most states could not replace that lost funding without raising taxes significantly,” the report said. “Instead, they’d very likely cut many key investments and public services.”

Delivered to Congress in late May, Trump’s budget would cut or eliminate federal funding for an array of programs, including Medicaid, the Supplemental Nutrition Assistance Program (SNAP), the Social Services Block Grant (SSBG), and Temporary Assistance for Needy Families (TANF). It would eliminate funding of Community Development Block Grants, and shrink or scratch non-defense discretionary spending.

A White House spokesperson told Bloomberg BNA that the president wants to give states more control and responsibility because they are in the best position to determine their needs.

Veronica de Rugy, senior research fellow at the Mercatus Center at George Mason University, told Bloomberg BNA that devolution of programs to the states will make states more responsive and accountable to taxpayers.

“I actually believe that for all its flaws, this budget deserves credit for starting a conversation about not only the merits of these programs but also the merits of having the federal government pay for them,” she said.

Shift to States

The proposed falloff of federal funding would effectively shift the fiscal burden to state governments, many of which are already contending with budget shortfalls, according to the CBPP report. Starting in 2018, Trump’s cuts would short-change states $44 billion—equivalent to more than 5 percent of state general fund budgets. The statewide deficit would reach $453 billion by 2027, representing 37 percent of state budgets at that time.

According to John Hicks, executive director of the National Association of State Budget Officers, two-thirds of U.S. states have reduced revenue estimates this year, and about half are still spending less than they were before the recession.

A report released June 13 by the Rockefeller Institute of Government at the State University of New York found that state and local government tax revenues continue to grow at an extremely slow pace.

“States face fiscal uncertainty with federal tax policy in flux and potential cuts in federal aid to the states on the horizon,” the report said.

Even if states did raise taxes to continue funding some programs effected by the president’s proposed budget, low-income residents would likely bear the consequences, according to the Center on Budget and Policy Priorities’ report.

State and local tax systems are regressive—"that is, they constitute a larger share of income for lower-income residents than high-income ones,” the report said. Shifting responsibilities for funding services from the federal government, which has a progressive tax system, to states and localities would likely increase the burden on many of the same low-income people at risk of losing services, it said.

Broader Base Would Help

Joseph Henchman, executive vice president of the Washington, D.C.-based Tax Foundation, told Bloomberg BNA that cuts are only part of what is needed on the part of the federal government.

“The federal government provides over $1 trillion a year to state and localities for one-size-fits-all programs,” he said. “Funding changes should come with the flexibility to move priorities around. A broader tax base at the federal level would also benefit states.”

Some of the programs targeted by the White House could be improved by turning over management and funding to the states, de Rugy said. “Let’s not forget that the federal government is often an inefficient and expensive middleman.”

To contact the reporters on this story: Jennifer McLoughlin in Washington at jmcloughlin@bna.com and Che Odom in Washington at codom@bna.comTo contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

Text of the CBPP report is at http://src.bna.com/pOO.

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