HARTFORD, Conn. – The cost of the compromise needed to raise the federal debt ceiling likely will inflict more fiscal pain on states still struggling to recover from the recession and the end of federal stimulus spending.

President Obama and Republicans sealed a deal Sunday to avoid the nation’s first financial default and raise the debt limit while slashing more than $2 trillion from federal spending over a decade. Obama said that, if enacted, the agreement would mean “the lowest level of domestic spending since Dwight Eisenhower was president” more than half a century ago.

While the details of the spending cuts to states remain unclear, lawmakers from both parties have discussed the need to cut or impose caps on so-called discretionary spending over the next decade.

That could mean wide-ranging cuts in federal aid to states, affecting 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.

There also was concern among governors, state lawmakers and state agency heads that Congress would make deep reductions or changes in federal aid for health services for the needy, most notably through Medicaid.

“We have the potential for disaster should there be a major realignment in federal funding that results in a cost shift to states,” said Nevada state Sen. Sheila Leslie, D-Reno.


States already have closed nearly $480 billion in budget gaps since the start of the recession, according to the National Conference of State Legislatures.

In Connecticut, for example, about 19 percent of the state’s non-transportation revenue comes from the federal government.

“The timing is lousy in every respect,” said Benjamin Barnes, secretary of the Connecticut Office of Policy and Management. “It will certainly have a recessionary impact on the overall national economy, and that’s the last thing we want right now.”

A concern in many states is a possible change in the federal-state formula known as FMAP, which is used to fund Medicaid programs. In Nevada, for example, the federal government pays 55 percent of the cost. Every 1 percent of cost that is shifted to the state equals roughly $15 million.

“The change in FMAP is probably one of the more fearful ones that we could experience,” said Mike Willden, director of the Nevada Department of Health and Human Services.

Not all state officials were dismayed by the possibility of broad-based cuts in federal aid.

Alaska Gov. Sean Parnell said he believed substantial funding cuts would have less of an impact on his state than allowing the federal government to stay on its course of mounting debt.

He is among a small group of GOP governors who signed a pledge urging Congress to oppose increasing the debt limit unless certain conditions are met, including substantial spending cuts.


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