What Will the Debt Ceiling Cuts Mean for Kentucky?

We don’t yet know what cuts Congress will make as a result of the deal made to raise the debt ceiling, and thus what the specific impact on Kentucky will be. But the agreement will inevitably lead to large federal cuts to services that directly benefit communities and families across the Commonwealth.

A few things we do know:

1. States like Kentucky will be hit hard by cuts in the category of federal non-security discretionary spending.

The deal results in about $1 trillion in cuts to discretionary programs (non-entitlement programs) over the next ten years, and asks for $1.5 trillion in additional deficit reduction from a bipartisan committee later this year.  One-third of the spending in the category of non-security discretionary programs normally flows through to states for education, human services, health care, law enforcement, infrastructure and other services. In 2011, Kentucky receives $2.7 billion in discretionary funds from the federal government, or 29 percent of the federal dollars the state receives (see Figure 1).[1] The likely cuts of half a trillion dollars in this area nationwide over the next decade will force states like Kentucky to make deep reductions in critical services. The only ways states will be spared is through huge cuts to purely federal areas like the National Institutes of Health and the FBI, which is unlikely.[2]

Figure 1

Source: Federal Funds Information for States

2. The committee formed to make additional cuts may threaten to target important services like Medicaid.

If the bipartisan committee charged with coming up with additional deficit reduction does not come to agreement, automatic across-the-board cuts are triggered in 2013. However, a deal could be reached instead, and some members of the committee are likely to target programs like Medicaid with proposals to shift costs to states or reduce benefits or eligibility for the program. Such results would harm Kentucky’s already poor health status.

3. The lack of attention to spurring the economy will mean ongoing employment woes.

The final deal includes no action to promote economic growth, including the extension of unemployment benefits that expire at the end of the year or additional investment in infrastructure or other areas. Kentucky still has 77,800 fewer jobs than it did in December 2007, and has a total jobs gap of 127,800 jobs once you take into account growth in the working-age population since the recovery began. Yet Kentucky has gained only 18,200 jobs over the last year, meaning many years until full recovery at current rates of growth.[3]

4. The absence of any new revenue fails to address the main cause of the budget deficit over the medium term.

The two rounds of tax cuts passed during the Bush administration are the primary cause of the federal budget deficit over the next ten years.[4] Revenues are at the lowest level as a share of the economy that they’ve been since 1950.[5] Yet the deal includes no new revenues, even from closing loopholes for the wealthy and powerful corporations, and instead puts the burden of deficit reduction on low- and middle-income people in places like Kentucky.