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News from EPI States lose $5.1 billion in grants due to sequestration

States lose $5.1 billion in grants due to sequestration 

Education, infrastructure and public safety are on the chopping block as 25 states see declining grant funding in Fiscal Year 2013

In What do current federal funding levels in the wake of sequestration mean for state budgets? Rebecca Thiess, EPI federal budget policy analyst, finds that sequestration means a loss of $5.1 billion in grants for state governments in fiscal 2013. Taking into account both sequestration and funding passed under the March 31st continuing resolution, 25 states will see declining grant funding when compared to fiscal 2012.

Grants provide roughly one-third of total state revenues and are one of the main ways the federal government provides aid to states; states in turn rely on federal grants to fund infrastructure improvements, education, social services and public safety efforts. While states have already been hit hard by the recession and various austerity measures, sequestration and the latest continuing resolution will further limit states by hindering federal contributions to grants. Though sequestration spares some programs, including Medicaid—which accounts for a large portion of grants to states—many programs operated at the state and local level will feel the effects. Each state will experience different impacts, and many will face tough choices, including whether to cut education, infrastructure, public safety or other key programs, as they seek to make up ground for funding losses.

“Unfortunately, our fiscal policies are being determined in the aftermath of manufactured crises, rather than through deliberative processes,” said Thiess. “Sequestration hits people where it hurts —in this case, by limiting states’ ability to provide necessary and vital services on which millions of families rely. Lurching from fiscal crisis to crisis is no way to ensure that we’re providing or planning for essential government services.”

“Sequestration is harmful for a number of reasons, but in looking at programs that rely on state grants we see that a large swath of them are on the chopping block,” said Thiess. “And though the cuts may look small in percentage terms, they are meaningful not only when scaled against the larger economy, but also to people on the ground whose standards of living are lifted by the existence of those programs.”

The five states with the largest percentage of cuts to grants are Louisiana, Indiana, Maine, Connecticut, and Massachusetts. On average, those states face an estimated funding loss of 4.5 percent in FY2013, or $402 million per state, relative to FY2012. On average, those same states experienced positive growth in grants from the federal government over both fiscal 2010–2011 and fiscal 2011–2012.