Federal Shutdown Could Worsen States’ Budget Pain

By: - April 6, 2011 12:00 am

Though it has been threatened and averted twice in the last six weeks, a federal government shutdown now appears likely this weekend, and states are beginning to fret about its effects on their already beleaguered budgets.

Scott Pattison, head of the National Association of State Budget Officers, says he has been fielding calls from worried state officials amid a breakdown in budget negotiations on Capitol Hill, he tells The New York Times . The state officials want to know how a partial federal shutdown would affect their bottom lines.

As Stateline

reported in March , it all depends on timing.

Federal funding for major safety net programs such as Medicaid and the Children’s Health Insurance Program likely won’t be turned off the second the current budget deal expires at midnight on Friday (April 8), federal officials say. Even some smaller funding streams that are not considered “essential” and could be subject to a freeze wouldn’t immediately go away for states because many of them do not transfer funds from the federal government on a daily basis. The states, in other words, may have enough funding to last for several weeks.

Serious budget pressures would hit states only after a protracted federal shutdown, according to Pattison and other experts. As NASBO explained in an issue brief it posted on its website in February, even a shutdown that lasts for several weeks, “while inconvenient, would not cause significant harm to states.” The longest federal shutdown ever lasted 20 days.

That doesn’t mean, however, that states have no reason to worry in the short term. “Nonessential” federal workers could be furloughed right away, and states with the most federal employees – such as Alaska, Hawaii, Maryland, Montana and Virginia – could see a resulting loss in sales, income and other tax revenue ( click here for a Stateline map showing per capita federal civilian employees for all states). Many state employees are partially paid with federal funds, potentially forcing states to substitute their own money in the absence of cash from Washington. Workers who are missing their federal paychecks could sign up for jobless benefits, putting a further strain on already indebted state unemployment systems.

Meanwhile, national parks could be forced to close, as they did during the last federal shutdown of 1995-1996, resulting in a loss of tourism dollars for states that depend on visitors – especially as warmer weather arrives.

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