Claremore Daily Progress

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December 10, 2012

Fiscal cliff stalemate spurs anxiety in states

JEFFERSON CITY, Mo. — A plunge over the federal “fiscal cliff” may sound like a terrifying risk for many state officials anxiously watching as Washington struggles to avert automatic tax hikes and spending cuts set to start with the new year. Yet their greatest angst may stem not from the potential loss of billions of dollars, but the confusion surrounding it all.

The longer the White House and Congress remain at odds, the more difficult it becomes for governors and lawmakers who are trying to piece together their own budgets. Many states depend on federal grants to help finance education, environmental and community programs that are on the chopping block. Their economies are powered by military bases and defense contractors that could get whacked. And their state income tax revenues could rise or fall as a direct result of federal tax hikes.
All that of that is to say that states have a lot riding on the strained negotiations between national Democrats and Republicans over some way of raising revenues and reducing spending that would avoid a more drastic deficit-reduction plan, known as the “fiscal cliff” because it could send the country back into an economic recession.
“From a general economic standpoint, the sooner they could do something the better,” said Missouri budget director Linda Luebbering in a bit of understatement.
If nothing is done, states stand to lose $7.5 billion in federal funding for 161 grant programs subject to automatic spending cuts, according to the Federal Funds Information for States, a Washington-based organization that tracks the effects of policy decisions on states. The biggest of those cuts could come to federal aid for schools that teach large numbers of low-income students. Funding for special education, early childhood programs and food subsidies for women and children also could take sizable cuts.
If nothing is done, state economies could get jolted by an automatic $33.6 billion of spending cuts for defense contracting and military wages — hitting especially hard in places such as Virginia, California and Texas, according to the FFIS report.

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