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U.S. House approves debt deal with over $2T in cuts, state budgets will suffer

The Republican-controlled U.S. House of Representatives approved a budget bill by a vote of 269-161 on Monday that represents the culmination of weeks of negotiations with the White House over raising the federal debt ceiling.

The GOP House consistently refused to approve a debt ceiling increase unless it contained cuts to government spending and no tax or revenue increases, and the final bill fulfilled both those prerequisites. Half of the House Democratic Caucus opposed the bill because it failed to increase revenues, which was a position that President Obama said he shared as early as last Monday. Among those Democrats who voted in favor was shooting victim Rep. Gabrielle Giffords (Ariz.). The White House has said Obama will sign the bill in its current form given the Senate also advances the legislation.

The budget deal, titled the Budget Control Act of 2011, would ensure that the United States government has enough borrowing authority to finance itself until 2013 through a series of increases in the debt ceiling, although each increase can be stopped if a two-thirds majority of Congress votes against it after the president requests it.

The bill establishes a cap on discretionary spending — spending that has to be approved every fiscal year by Congress — that would last until 2021 and, according to the Congressional Budget Office, result in $917 billion in savings over that time period. It also establishes a commission comprised of members of both chambers of Congress that would have to recommend $1.2 trillion in additional cuts. If Congress fails to approve the committee’s recommendations, $1.2 trillion in spending cuts, half from social spending and half from the defense budget, would automatically go into effect. Social Security and Medicaid would both be exempted from these automatic cuts, but payments to Medicare providers would not, as well as discretionary spending programs that don’t directly target low-income families or civilian and military retirement. Those rules don’t apply to the joint commission, which could recommend cuts to any program in the budget, including Medicaid, Medicare and Social Security.

State governments will bear much of the brunt of the spending cuts given that one-third of federal discretionary spending is given directly to states via grants for Medicaid, education, transportation and infrastructure. States rely on this federal money to ensure that their budgets are balanced, particularly during economic downturns when state budgets are hardest hit by revenue shortfalls. The Detroit Free Press reports that the cuts could include, “everything from the Head Start school readiness program, Meals on Wheels and worker-training initiatives to funding for transit agencies and education grants that serve disabled children.”

Moreover, if the joint commission successfully approves recommended cuts, and those cuts are approved by Congress, Medicaid will once again be on the table. As Suzy Khimm of the Washington Post reports, proposals by House Republicans for future cuts include scaling back required Medicaid eligibility and benefits, as well as cuts to payments to Medicaid providers like nursing homes.

The verbal reaction of state political leaders to the federal debt ceiling debate of the past weeks has ranged from reserved and noncommittal commentary to full-throated ideological sympathy. Many Democratic and moderate Republican governors, recognizing the harm that a national default or a spending cuts-only approach would deal to their states, urged national congressional leaders and the Obama administration to reach a balanced compromise. But state Republicans associated with the tea party were more likely to express strong support for the national GOP’s strategy of what conservative blogger Erick Erickson called “holding the line,” rejecting any deal that compromised on core tea party policy principles.

Five Republican governors, including Florida Gov. Rick Scott and South Carolina Gov. Nikki Haley, signed the “cut, cap, and balance” pledge, which states that the only possible solution to the debt ceiling debate was an amendment to the constitution that capped federal spending at 18 percent of GDP. Even after Moody’s ratings agency included South Carolina in a list of five which were at risk of a credit rating downgrade in the event of a federal default, Haley refused to back down from her position, and blamed Obama for failing to lead.

By endorsing an uncompromising position, these governors were putting aside the political incentives that state governments face during budget-cutting times. The fact that states have to deal with much of the political blowback to an economic downturn means non-tea party governors have greeted the advent of a budget deal with relief. New Jersey Gov. Chris Christie, considered a rising star in the Republican Party, told Bloomberg, “I join with, I’m sure, hundreds of millions of Americans when I say I’m relieved the president and the Congress have finally gotten around to doing their jobs.”

He and his fellow governors have been telling their states to get ready for fewer federal dollars for weeks now. Mississippi Gov. Haley Barbour, whose state’s dire poverty makes it one of the most dependent on federal money, told the New York Times in July that, “No matter what happens, states are going to get less money from the federal government.”

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