Georgia has increasingly used federal funding to pay for state services, but that strategy may backfire now that the president and Congress have approved a debt reduction plan.
The state government’s $37 billion overall budget is propped up with about $11 billion in federal funding, which goes towards everything from health care for the poor to historic preservation. Federal tax money has helped avoid bigger state and local government layoffs than the state has already made.
State officials know the debt deal approved last week will likely mean major cutbacks in how much money they receive from the federal government. They just don’t know when the hit will come, how much it will be, and which programs will be affected by the decision by Congress to slow the flow from the federal spigot.
“Every chance we could, we switched state [program] funds to federal funds in the budget,” said Senate Appropriations Chairman Jack Hill, R-Reidsville. “It threads its way all through our budget. Whether it’s short term or long term, cutbacks are going to touch states and they are going to touch us. Yeah, it’s scary.”
But Kelly McCutchen, president of the free market Georgia Public Policy Foundation think tank, said state services have survived past cuts in federal funding, such as the elimination this year of economic stimulus money.
“We don’t believe that the concerns with state funding should stand in the way of getting the federal government’s fiscal house in order,” he said.
A reliance on funds
The more than $30 billion the state spends each year touches the lives of millions of Georgians. It helps pay for about 2 million Georgians to attend k-12 schools, universities and technical colleges. It pays the salaries of about 250,000 school system employees, teachers and state workers. It provides health care programs to more than 1.5 million Georgians. It keeps state parks open, administers driver’s licenses, regulates utility rates, and helps keep felons locked up.
Top Georgia politicians have long criticized the spending habits of the federal government, but locals have increasingly relied on U.S. taxpayers to help foot the bill for state services. The state’s budget included about $7 billion in federal funding in 2003. By 2010, with federal stimulus money flowing in, the figure reached about $13 billion, almost as much as the state got from Georgia taxes. Stimulus funding dropped off, and the state is budgeted to spend $11 billion in federal money this year.
The recession helps explain the state’s increased reliance on federal funding. Tax collections dropped dramatically, so Georgia and other state officials looked to the federal government to help make up the difference. Even with the aid, the state has cut billions from its budget in recent years. And more poor and unemployed Georgians have relied on the state to provide health care and other services.
Medicaid, the health care program for the poor and disabled, gets the largest chunk of federal aid. The Department of Community Health, which runs Medicaid, is budgeted to receive about $5 billion in federal funding this year. The Department of Education will get about $1.8 billion for things like special education classes, and technical colleges will get about another $70 million.
The debt deal, which would cut more than $2 trillion in total federal spending in the next decade, appeared to exempt Medicaid from immediate cuts in federal support.
Some state agency officials were already looking over their budgets last week to figure out what could be reduced.
Michael Light, spokesman for the state’s technical college system, said federal funding pays much of the cost of providing adult literacy classes and helps pay for technical training for students in many subjects.
Federal grants help the state provide aid to people needing housing and provides grant money to communities to upgrade their water and sewer systems.
The state’s road building and maintenance are aided by $1.2 billion in federal funding. Most of that comes from federal gas taxes and that may wind up being untouched by budget cutters. But other subsidies could be goners, and officials say that could mean transportation cuts of 20 to 30 percent in Georgia.
The state Department of Natural Resources budget has been cut heavily in recent years. It is one of the agencies where jobs previously funded by the state have been moved to the federal portion of the budget. It is budgeted to receive $54 million in federal funds this year.
DNR Deputy Commissioner Todd Holbrook said federal money goes to a variety of wildlife and environmental protection programs. Some of it may be protected from federal cuts because it comes from dedicated taxes and fees, such as the excise tax on arms and ammunition, and the money goes to specific programs.
One example of an area where the federal government plays a big role is historic preservation. Holbrook said reviews meant to ensure historic sites are preserved are done whenever roads or reservoirs are built. More than half of the employees in the DNR’s historic preservation area are paid with a mix of federal and state funds.
“We couldn’t do those reviews if we didn’t have the funds,” he said.
Debt deal support
McCutchen argues that the federal government needs to be trimmed, even if it costs the state some initial heartburn. He said the federal government could save money by eliminating or greatly reducing agencies like the U.S. Department of Education and the U.S. Department of Transportation and letting state governments take over the full responsibility of providing services.
That would cut the federal bureaucracy, McCutchen said, and states could decide what services need to be delivered.
“Our encouragement would be to eliminate [federal] programs, don’t just cut programs back, because you don’t eliminate the bureaucracy,” he said.
Gov. Nathan Deal, a former congressman, said the federal debt deal is probably good for the state in the long run. Some of the federal money comes with requirements attached that force the states to spend more money in order to qualify. Many health care and social service programs, for instance, require state matching money.
“Too often we have been affected by the federal government having money and spending that money in ways that required the states to take action that states can’t sometimes afford to do,” Deal told WABE radio last week. “Too many times our budgets are dictated by requirements coming down from Washington. Hopefully we will see some of those things backed away from.”
Sujit M. CanagaRetna, senior fiscal analyst for the Atlanta-based Southern Legislative Conference, said federal cutbacks likely won’t kick in until 2013 at the earliest, so states will have time to plan for them if they get some idea of what areas will see reduced funding.
When that happens, CanagaRetna is concerned it could lead to large-scale layoffs among state and local workers because so much of government budgets are tied, directly or indirectly, to federal spending. He said across the country, 550,000 state and local government employees — teachers, firefighters, bureaucrats, etc. — have been laid off since the Great Recession began.
“State and local governments have taken massive hits, and it looks like it is only going to get worse,” CanagaRetna said.
Georgia’s share
This year’s state budget includes about $11 billion in federal funding to provide services from health care and technical school training to roads. Below are the state agencies that receive the largest share of the federal funding.
● Department of Community Health (Medicaid): $5.1 billion
● Department of Education: $1.8 billion
● Department of Transportation: $1.2 billion
● Department of Human Services: $1 billion
● Department of Public Health: $471 million
● Department of Labor: $345 million
● Department of Community Affairs: $167 million
● Department of Behavioral Health and Developmental Disabilities: $162 million
● Department of Early Care and Learning: $146 million
● Technical College System: $70 million
Source: Office of Planning and Budget
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