Last week media was in a frenzy about the effects that federal spending cuts would have on states and cities under sequestration. Last Monday morning, the White House put out information including the graphic above to highlight the implications of spending cuts for the most vulnerable Americans. These are tough numbers, but there is no context provided to understand the magnitude of spending reductions.
I spent all week on Twitter trying to point out that cuts to state and local governments from the sequester would sting, but they would not chop off limbs. Media were reporting that communities would be devastated. Reports highlighted personal stories from employees who were worried about their jobs or loss of services. But almost all the frantic coverage failed to put the funding reductions for state and local governments in context. None of the coverage focused on the possibility that state governments could, and most likely would, damper or avert these cuts by finding internal efficiencies and re-prioritizing their own budgets.
A broader view was provided by Standard & Poor’s via Governing.com:
In fact, states and municipalities may already be fairly well prepared to handle the effects of sequestration, thanks to cutbacks and other austerity measures they’ve already made in response to a weaker revenue environment. Standard & Poor’s Ratings Services said in a report Thursday that sequestration “may have only minor negative credit consequences for state and local governments and their affiliated entities.”
“States and many local governments have been actively monitoring developments at the federal level, and we believe they have evaluated the potential effects of sequestration in their revenue forecasts and budgets,” Standard & Poor’s credit analyst Gabriel Petek said Thursday in a statement.
But the numbers put out by the White House and magnified by others seem to contradict S&P’s comments. It may help to drill into a few of the numbers cited by the White House.