What the coming federal budget cuts could mean for Oklahoma

Election news may soak up a lot of the attention this year, but we shouldn’t lose sight of the major policy changes set to go into effect no matter who wins in November. High among those are the automatic budget cuts that were part of the deal to increase the federal debt ceiling.

A brief recap: The Budget Control Act created a supercommittee tasked with finding at least $1.2 trillion in deficit reduction measures. When that group failed to reach an agreement, an automatic budget cutting process called sequestration went into effect. Under sequestration, there will be $1.2 trillion in cuts over the next decade, divided 50/50 between domestic and defense spending.

These cuts are scheduled to begin January 2013, with one important caveat. Although the cuts are automatic under existing law, Congress is still free to intervene at any time. Much like with the expiration of the Bush tax cuts, also scheduled for the end of 2012, there is certain to be legislative wrangling. However, President Obama’s promise to veto any attempt to alter the automatic cuts makes it much less likely that they will be stopped.

Assuming sequestration goes forward with no changes, an analysis from FFIS calculates the state-by-state impact of cuts.  The good news is that out of the $7.43 billion in federal grants received by Oklahoma in FY ‘11, $6.25 billion would be exempted from cuts. Exempted programs include Social Security, Medicaid, the Children’s Health Insurance Program (CHIP), Temporary Assistance for Needy Families (TANF), and SNAP food stamp benefits. Medicare, community health centers, and Indian health services are not exempt, but cuts to these programs would be limited to 2 percent.

Cuts to non-exempted programs mean that overall, Oklahoma would receive $100.3 million less in federal funding compared to FY ’12 and $133.7 million less compared to FY ’11. Fully affected programs would see cuts of about 8.7 percent of their federal funding compared to FY ’12.

The impact will be felt in two ways: reductions in services of the affected programs or a need for Oklahoma to cover the shortfall by shifting money out of other programs. Two programs in particular that would likely require an infusion of other state funds are Title I grants for disadvantaged schools funding and IDEA special education funds. Both are set to receive full cuts, but school districts facing mandates for student achievement may end up allocating more to cover the needs of high-poverty or special education student populations. Absent overall increases in state funding for education, this means that other parts of district budgets, including non-Title I schools, could take at least some of the hit.

By contrast, programs administered by the state but using entirely federal funds are unlikely to supplemented with state money. A major example is the Low Income Home Energy Assistance Program (LIHEAP), which helps low-income familes with winter heating and summer cooling costs. LIHEAP will take the full cut under the sequester, even though it’s already been reduced to one-third of its 2010 budget. As a result, OK DHS had to close new enrollment in the program and severely restrict eligibility. A DHS programs manager said of the move, “This goes against the very core of our mission at DHS, which is to help Oklahomans in need. However, with limited funds from the federal government we can only do what we can with what we have.”

Several other programs important for Oklahomans would receive the full cut. These include the Women, Infants, and Children (WIC) program, which subsidizes nutritious foods and infant formula for low-income mothers with young children, and Head Start, an important component of early childhood education in Oklahoma. The child care subsidy, a joint-federal state program, is only partially exempt and has already been threatened by cuts on the state level. After arousing significant opposition, these cuts were deferred indefinitely, but a loss of federal funds may put them back on the table.

We also shouldn’t forget the impact of the sequestration cuts going to defense spending. Federal employee salaries, both civilian and military, accounted for about 6.1 percent of the total personal income in Oklahoma in 2010, and private defense manufacturers are a major state industry.

Much remains uncertain, but what’s clear is that we need to be prepared for more federal austerity. Sequestration is just one more obligation in a growing pile that threatens to squeeze every dime from the state budget. Rather than fantasizing about the next tax cut, it’s time to acknowledge these obligations and bring our budget discussion back to reality.