e-mail us

Cover story

Fiscal mess, drive to war put social services on the block


As politicians scramble to cast blame and propose solutions to the budgetary crisis facing every level of government, there is one point of bipartisan agreement: The nation is a fiscal mess.

There’s additional agreement, at least at the state level, that those most dependent on government assistance -- the poor and the infirm -- will see the programs they rely on slashed as governors and legislators push to makes ends meet.

Not only does the president’s proposed 2004 federal budget anticipate the largest deficit in the country’s history ($307 billion) and flat-lined or reduced social spending in most areas, but state governments are experiencing what budget analysts call their worst fiscal crisis since World War II. Unemployment, meanwhile, is nearing a decade-long high and the specter of war dampens both business investment and the consumer spending that drives the 21st century U.S. economy.

Not a pretty picture.

Disagreements arise quickly over the causes of the crisis -- and how to solve it. Republicans point to Clintonian excesses of the ’90s -- a boom that went bust -- combined with the unanticipated economic sluggishness attributable to Sept. 11. Additional tax cuts and restrained social spending will fuel economic recovery, the Bush administration argues.

Democrats contend, by contrast, that the $1.35 trillion tax cut Bush pushed through in 2001, combined with an additional $1.5 trillion in tax cuts proposed over the next 10 years, will sap the treasury of needed dollars and put too much money in the hands of those, the wealthy, least likely to generate the economic activity needed to fill government coffers. Less costly targeted tax cuts aimed at “working Americans” combined with relatively modest spending on jobs-producing transportation programs are the best means to jump-start the sluggish economy, according to plans unveiled last month by House and Senate Democrats.

Meanwhile, as state legislatures around the country begin their sessions in earnest, policymakers and advocates are coming to grips with an environment of growing needs and declining resources.

The state of the states

Unlike their federal counterpart, the vast majority of state governments must, by law, balance their budgets; they can’t just print money. The projected combined state budget gaps for 2004 are approaching $85 billion -- nearly 20 percent of total state expenditures. This bad news comes on top of already lean 2003 budgets, where states had to achieve $50 billion in budget savings to balance their books.

“The combination of long-run deterioration in state tax systems coupled with an explosion of health care costs are creating an imbalance between revenue and spending,” according to National Governors Association Executive Director Raymond C. Scheppach. “To make matters worse, we’ve had a collapse of capital gains tax revenues added to the overall loss of revenue attributable to slow economic growth.”

Willy Sutton reportedly robbed banks because that’s where the money is; at the state level most of the money is in education, where aid typically helps equalize disparities between affluent and poor school districts, and in health care, specifically Medicaid, the joint federal-state health care program for the poor.

In New York, says state Catholic Conference spokesperson Dennis Poust, a projected $10 billion deficit led Republican Gov. George Pataki to propose cuts of $1.2 billion in Medicaid; in addition, Pataki proposed to tighten eligibility for the state’s “Family Health Plus” program, which provides medical insurance to the working poor. Similar size cuts planned in education, said Poust, will disproportionately affect poor school districts.

In Minnesota, Republican Gov. Tim Pawlenty has, like Pataki in New York, pledged not to raise taxes to close that state’s two-year $4.5 billion projected deficit. “When you’re looking at a deficit the size we have, and you’re not willing to raise taxes, all the balancing measures have to come through program cuts,” explained Tony Pucci of the Minnesota Catholic Conference.

In other states, tough budget times have put social welfare advocates in awkward positions. In Maryland, Republican Gov. Robert Ehrlich proposes to close that state’s $1 billion budget gap, and fund popular social service programs, by allowing slot machines at racetracks, a proposal opposed by much of the state’s religious community.

Bad choices are all that remain in Michigan, where education programs have grown steadily for more than a decade. “It is only fair that higher education and K-12 receive some cuts, as important as those programs are, because we have really taken a lot out of other key programs and their ability to sustain further cuts without chopping the ability to serve people is really questionable,” says Paul Long, vice president for public policy at the state’s Catholic Conference.

Anti-tax increase governors from Idaho to Connecticut are, however reluctantly, looking to taxpayers to fund programs they consider essential.

California faces the mother of all budget gaps: $26-$35 billion over the next 16 months. A top priority for advocates, says state Catholic Conference director for Hispanic Affairs Al Hernandez, is to fight proposed cuts in the state’s MediCal program, which would reduce health benefits to 350,000 adults over the next two years. Also on the chopping block: medical insurance for two-parent low-income families; elimination of a $9 million immigration naturalization program; and a reduction in supplemental state benefits to blind and disabled SSI recipients.

Even as deficits climb and budgets decline, the needs increase. “We’ve seen demand go up for everything from emergency shelters to food shelves as the economy has continued to slump and we want to be sure the government continues its commitment to the welfare of people of all the state,” says Pucci.

“[O]ur agencies report that their state and local governments are starved for resources and that the already precarious state of local health and social services programs may be further destabilized if the federal government does not provide an immediate infusion of resources,” Fr. J. Bryan Hehir, president of Catholic Charities USA, said in a recent letter to Congressional leaders.

Federal budget follies

The 3,000-page federal spending plan proposed by the Bush administration Feb. 3 is chock full of the gimmicks and sleights-of-hand all administrations use to mask inconvenient realities. This year’s budget document, for example, does not provide 10-year projections of revenues and expenditures, as previous ones have, but only five-year forecasts. The truncated projections allow the administration to mask the size of future deficits.

But on one point, at least, this proposed fiscal blueprint is unambiguous: “The federal government must restrain the growth in any spending not directly associated with the physical security of the nation.”

The result of that guiding philosophy is a plan that increases military spending by nearly $17 billion (though the cost of such high-priced contingencies as war with Iraq are not factored in) and provides a 7 percent increase for programs administered by the newly established Department of Homeland Security.

Left wanting are the bread-and-butter social safety net programs.

“I can’t see anything other than big trouble in this budget for the country,” former Clinton administration budget chief and former House Budget Committee Chairman Leon Panetta told NCR. “I think this president is in danger of repeating the mistakes of the ’80s all over again,” said Panetta. “That means we’re looking not only at exploding deficits, but some very serious constraints on a lot of priorities, particularly in the domestic area.”

Federal budgeters typically separate the nation’s spending priorities into four pots: entitlement programs such as Social Security and Medicare (a third of the $2.23 trillion budget); interest on the debt (no discretion on this $176.4 billion -- it must be paid); military spending (a top priority of this administration); and domestic discretionary spending -- everything from the FBI and NASA to education grants and the National Park Service. (Additional programs exist through the tax code; the Earned Income Tax Credit, for example, is the federal government’s second largest program assisting the poor.)

These realities put domestic discretionary spending directly in the budgetary crosshairs.

“Their priorities are tax cuts and defense spending,” says Panetta. “And the rest of the budget, by the very nature of where we are in terms of our ability to pay for any of this, is going to restrain domestic spending.”

Cutting programs

Some examples:

  • The $1.7 Billion Social Service Block Grant -- money that goes to states to fund everything from job training and nutrition services for low-income families -- is frozen at current spending levels. Catholic Charities and others want Congress to increase the block grant.
  • Local anti-poverty efforts funded through the $570 million Community Services Block Grant would be reduced by $75 million under the Bush plan.
  • Clean water programs would be reduced $170 million from 2003 levels.
  • Funding to support the revitalization of distressed public housing -- the $574 million “HOPE VI” Program -- would be eliminated.
  • Refugee assistance programs would be cut by $56 million.
  • And eligibility screening for the school lunch program and Earned Income Tax Credit would increase.

Meanwhile, the administration is making the states an offer they might not be able to refuse. The budget offers a much-needed short-term infusion of federal money into state Medicaid programs, but only for those states that agree to forgo the formula-driven funding for a block grant, which critics contend would be more easily subject to cuts.

“It is disturbing that at a time when states face their most severe budget crises in 50 years and are considering drastic cuts in Medicaid coverage for working parents, children and elderly and people with disabilities -- and are seeking temporary federal assistance to mitigate these cuts -- the administration would hold such aid hostage to a state’s agreeing to accept changes that threaten to weaken health insurance for low-income families in the future,” said Bob Greenstein, executive director of the Center for Budget Policy and Priorities, a liberal think tank.

Similarly, the administration hopes to convert the $12 billion housing voucher program -- which provides rent subsidies to low-income families seeking housing in the private market -- into a block grant. In tight budget times, said Panetta, block grants can make “a bad situation look better by virtue of giving the states more flexibility, but in the end, if you look at the people who receive the benefits, they are the ones who are going to pay the price.”

The administration is betting that a low-taxes, high-deficit, pro-national security budget will be a winner with Congress and the American people. For Bush, there’s an encouraging precedent. The last president to take that approach, Ronald Reagan, had a fair amount of political success with it.

National Catholic Reporter, February 14, 2003