published Thursday, November 15th, 2012

Federal fall over ‘fiscal cliff’ would hurt states, too

NASHVILLE — If the federal government falls off the “fiscal cliff” as a result of mandatory spending cuts, Tennessee and a lot of people in the Volunteer State may fall right along with it, according to a study released today.

The nonpartisan Pew Center on the States says the series of federal tax increases and spending cuts set to occur in January, absent an agreement between President Barack Obama and Republican members of Congress, will have “consequences” for states, including Tennessee.

According to Pew, the amount of federal grants in Tennessee subject to “sequester,” or mandatory cuts as a percentage of state revenue, is 7.7 percent based on 2010 figures. That’s the fifth highest among all 50 states and above the 6.6 percent national average.

Meanwhile, federal spending on procurement, salaries and wages as a percentage of Tennessee gross domestic product in 2010 is 4.9 percent. That’s below the national average, mainly due to the fact that Tennessee isn’t as high as many states when it comes to defense spending.

But when it comes to cuts in non-defense spending on procurement, salaries and wages, the Volunteer State’s 3.1 percent is well above the 1.8 percent national average. Tennessee is home to Oak Ridge National Laboratory, which is a huge federal presence in the state.

“The ‘fiscal cliff’ is a great example of how closely intertwined state and federal finances are,” said Anne Stauffer, project director for Pew’s Fiscal Federalism Initiative, a telephone conference call today.

She said the “consequences for states are not being considered in the current debate” in Washington, where Democrats, including President Barack Obama, and congressional Republicans are wrestling over the impact of “sequestration” on the federal government.

“The implications for states should be part of this discussion, [that] policy discussions lead to long-term stability at all levels of government,” she said.

Cuts would not affect the Medicaid program for low-income pregnant women and children, some disabled and some elderly Tennesseans. But it would affect state programs in areas ranging from education to social service block grants.

For complete details, see tomorrow’s Times Free Press.

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