August 11, 2011; Source: Stateline | These are the kinds of stories that drive us crazy. After weeks of dire predictions from many quarters about the potential effects of the debt ceiling deal, Stateline now reports that budget experts are saying that “the damage to state budgets may not be so bad after all.” The elements of Stateline’s prognosis are as follows:

  • The immediate spending cuts in the budget deal are to “discretionary” programs. Not only are mandatory programs such as Medicare and Social Security unaffected, so is Medicaid, which states really care about because it has a direct impact on their budgets.
  • The $917 billion cut in discretionary spending over 10 years is not quite as bad as it appears, because that $917 billion number is adjusted for inflation. In dollar terms, discretionary funding would actually rise over those 10 years, though not fast enough to keep up with expected inflation.
  • For fiscal year 2012, the deal reduces federal non-security discretionary spending by only $2 billion. According to the National Council of State Legislatures, this will give states another 12 months of close-to-level funding.
  • The congressional “Super Committee” is supposed to cut another $1.2 trillion in spending over 10 years. This could come in part from Medicaid reductions, but experts are reasonably confident that the committee will be unable to bridge the gap between the two parties and end up doing nothing, or at least nothing that does much damage to Medicaid.
  • If the committee stalls as expected, $1.2 trillion in automatic cuts are “triggered,” beginning in 2013. But most mandatory programs such as Medicaid, Children's Health Insurance Program, TANF, and food stamps are exempt.

It doesn't take much to see that while state budgets vulnerable to Medicaid cuts might be protected in both the negotiated and triggered budget scenarios, other discretionary funding could be cut deeply: education, Head Start, affordable housing assistance, child care, job training and placement, and a raft of other human service programs. Stateline notes, “Some of these cuts would significantly alter state budgets and would hurt beneficiaries of federally funded services, but would not necessarily throw a state’s budget out of balance.”

Nonprofits that are tied to Medicare and Medicaid and other health-related federal programs are likely to remain in decent shape. But for those nonprofits who support the poor by providing or advocating for their non-health needs, the budget situation looks increasingly dire.—Rick Cohen