Crews install portraits of state capitol buildings at the Thomas Michael Menino Convention and Exhibition Center on Aug. 4 in Boston. Many lawmakers attending the National Conference of State Legislatures annual summit said they were still grappling with how to respond to President Donald Trump’s major tax and spending law. (Photo by Kevin Hardy/Stateline)
During this year’s budget cycle, Oklahoma state Sen. John Haste said lawmakers had two major things on their minds.
“Number one was tax cuts. Number two, what the hell is going on in Washington?” he told a national gathering of state lawmakers last week in Boston.
While Oklahoma lawmakers secured another round of income tax cuts, they are still wrapping their heads around the fiscal impacts of President Donald Trump’s massive spending and tax law, Haste said. The measure slashes funding for health care and food assistance.
That legislation, and other Trump actions, proved a central theme of discussion during the National Conference of State Legislatures summit, which organizers said was the largest ever gathering of state lawmakers with more than 1,600 in attendance. Aside from cutting funding, the law imposes costly new administrative burdens on states.
States are still sorting through the long-term impacts of the legislation — and what, if any, actions they can take to soften the blow.
Haste, a Republican, said concern is highest in rural areas, where reduced Medicaid funding could threaten hospitals. He said that just one provision of the law will cut $209 million in funds that help Oklahoma cover the cost of Medicaid, and that the state will need to spend an estimated $30 million on the new cost of checking eligibility twice per year.
“All of those things added together come up to a really big number,” he said, but added: “We don’t know exactly what that is.”
Lawmakers from liberal and conservative states said they are still grappling with the implications of Trump’s signature legislation. With most states boasting solid fiscal positions, some expect to cover new up-front administrative costs by tapping into strong reserve funds. But many are considering reducing services.
Nevada state Sen. Fabian Doñate, a Democrat, said state leaders will have to cut Medicaid eligibility or services since Republican Gov. Joe Lombardo has said he will oppose any efforts to raise taxes.
SUPPORT: YOU MAKE OUR WORK POSSIBLE
“That becomes a challenge, right?” Doñate said during a panel discussion on Medicaid. “Do you cut the pregnant mom or the person that makes above 180% of the federal poverty level who’s under 50, or do you cut diapers for seniors?”
At the same time, states must gear up for new bureaucratic mandates from Washington.
“Regardless of how you feel about these provisions — whether these are opportunities or challenges, fantastic or awful — regardless, it’s going to be a heavy lift for states,” said Lauren Kallins, NCSL’s senior legislative director for state-federal affairs.
She said states and organizations, including NCSL, are still awaiting detailed federal guidance on all the changes, which are spread out over several years. But states will need to react quickly.
One provision in the law requires the 40 states plus Washington, D.C., that have expanded Medicaid to check paperwork at least twice a year to ensure those enrollees are meeting new work requirements. The legislation provided states $200 million, but experts question whether it will be enough to help states implement the changes by the end of 2026.
To meet that deadline, states will need to increase outreach to Medicaid recipients and make new investments in technology, Kallins said. Similarly, states must cover new administrative costs for the Supplemental Nutrition Assistance Program, or SNAP, commonly called food stamps.
Traditionally, the federal government has fully funded SNAP benefits and split administrative costs of the program with states. The new law requires states to fund 75% of administrative costs and requires some states, depending on the accuracy of their eligibility determination, to fund a portion of benefits.
“So that’s another very significant increase for states,” Kallins said.
States in a ‘very, very strong position’
Though revenue growth is slowing, lawmakers and experts pointed out that many states currently enjoy strong budget fundamentals.
That’s true in Utah, which touts deep reserve funding and a rapidly growing economy.
Jonathan Ball, Utah’s legislative fiscal analyst, told conference attendees that the state could rely on some of its reserve for one-time administrative and technical costs associated with the federal legislation.
He said lawmakers and budget writers always have to find creative ways to solve their state’s budget puzzles.
“It’s a little bit maybe scarier, but it’s not a new sort of problem,” he said. “I think you all have the tools, we feel like we have the tools to fix it.”
Still, he said the potential for further federal funding cuts has raised many questions.
“The uncertainty about what happens in the future is huge,” Ball said.
At a separate session focusing on state budgets, financial analyst Geoffrey Buswick said most states have enviable credit ratings, meaning investors can be confident in a state’s ability to pay back debts, which affords it lower interest rates.
SUBSCRIBE: GET THE MORNING HEADLINES DELIVERED TO YOUR INBOX
Buswick, the managing director and sector leader for public finance at S&P Global Ratings, said states likely have the budgetary cushion to adjust to federal policy changes.
“The states are in a very, very strong position — about the strongest we’ve ever seen,” he said.
Maryland Democratic state Sen. Karen Lewis Young didn’t buy that assessment.
She said her state touts strong reserve funds, but that those can only be used for one-time expenses and not to replace eliminated funding on an ongoing basis. Maryland is facing a huge decline in federal jobs, along with federal cuts in transportation, health and education funding.
“What am I missing in your optimism?” she asked the financial analyst.
Afterward, she told Stateline that Maryland may tout a stronger position compared with other states. But she added that even with low unemployment and a high average income, the federal legislation forces difficult decisions for lawmakers, who are constitutionally mandated to balance the state budget.
“You’ve got to cut from someplace else,” she said. “If you’re losing a pretty large share of your federal match, who do you cut?”
A ‘substantial headache’
Across the country, Democratic lawmakers hope to underscore the cuts in Trump’s new law to weigh down Republicans in state races this year and next.
Hawaii Democratic state Sen. Ronald Kouchi said lawmakers need to ensure constituents understand where the spending cuts originated.
“Who’s going to be blamed when people are left out, when people are hungry and they lose out on educational opportunities?” he asked during a panel. “If we as state legislators do not convey that it is a result of the decisionmakers in Washington, D.C., they will be at our doorstep as the place of last resort.”
Kouchi, the president of the state Senate, said Hawaii leaders had socked away more than $1 billion in reserves. But he said the state cannot fill in all the financial gaps, especially during a time when officials are trying to set aside more in disaster funding and grapple with a slowdown in tourism.
“There is no current financial ability for the state to meet the needs of everyone who is currently being impacted,” he said in an interview.
We have no idea yet how we’re going to respond.
– West Virginia Republican House Speaker Roger Hanshaw
New Mexico state Rep. Meredith Dixon, a Democrat, said her state should be somewhat insulated after directing surplus oil and gas revenues into a new Medicaid Trust Fund. But she said it’s still unclear how much pressure the federal legislation will put on the state.
“We are not protected by any stretch. So we are going to have to look at how we cover those costs. … We’re still digging into everything.”
West Virginia House Speaker Roger Hanshaw, a Republican, said no one in the federal government or at the state level seemed to have a full understanding of the implications of the legislation.
“I look at this bill as Obamacare 2.0: We have to pass this bill so we can find out what’s in it,” he told Stateline.
Hanshaw said the law has some provisions that will benefit West Virginia and others that will cause a “substantial headache.”
“We have no idea yet how we’re going to respond,” he said. “I don’t want to speak for any other state … but I would speculate that’s true for nearly every other state.”
Stateline reporter Kevin Hardy can be reached at [email protected]. Stateline is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity.
Comments