Debt deal’s cuts likely to nip Iowa

WASHINGTON - The new belt-tightening in Washington will be felt across Iowa - the only question is how much.

The hard-fought agreement to raise the debt limit will cut at least

$2.1 trillion from the federal budget over the next 10 years. Now it's up to Congress to implement those cuts.

“We're definitely expect federal funding to the states to be reduced, the question is the magnitude and timing of the reduction,” said Brian Sigritz, director of state fiscal studies at the National Association of State Budget Officers.

As money from Washington shrinks, Iowa is luckier than most states. Iowa has “rainy day funds” of nearly $600 million that could help the state weather federal budget cuts.

“But states are still in a very deep hole because of the recession,” said Michael Leachman of the Center on Budget and Policy Priorities.

Demand for state services has risen during the recession as revenues from taxes and other sources have shrunk.

“What the federal government needs to be doing is helping states get back on their feet, but the debt deal goes in a different direction,” Leachman said.

Iowa receives nearly $9 billion each year in federal funds. Money from Washington accounts for about half of the state's total annual budget.

Millions of federal dollars also go to state transportation and public health programs.

According to the Consolidated Federal Funds Report for 2009, the federal government gave Iowa $777 million for education, $420 million in food aid for the poor, $2.2 billion in farm payments and $632 million in financial aid for college students. Washington gave millions more in research grants, defense contracts, heating assistance and for dozens of other purposes.

Iowa's entire congressional delegation voted against the debt limit deal. Democrats, like Reps. Dave Loebsack and Bruce Braley, did so because they say the coming cuts will disproportionately affect Iowa's poor and middle class.

“This legislation creates a system that protects special interests, hedge fund managers and Wall Street executives at the expense of the middle class, seniors and the most vulnerable,” said Loebsack after he voted against the debt agreement.

Republican members of the delegation, including Sen. Chuck Grassley, voted against the deal because they said it does not go far enough in curbing government spending.

“It doesn't deal significantly with entitlements in any way,” Grassley said.

Those entitlement programs, like Social Security, Medicaid and Medicare, cost the federal government the most money.

They're off the cost cutting table now, but it may be a temporary reprieve for Medicare and Medicaid.

The debt limit agreements calls for about $900 billion in cuts that have already been identified. It also establishes a bipartisan, 12-member Joint Congressional Committee to identify an additional $1.2 trillion in cuts.

If Congress can't agree on the committee's recommendations by Nov. 23, about $1.5 trillion in automatic cuts - with half coming from the military - would be triggered.

Since the bitter fight over the debt agreement seems to have heightened partisan rancor over spending issues - Democrats are chafing that the debt agreement did not include tax revenues - there are local concerns about that trigger.

The federal government spends about $4 billion a year for health care for seniors in Iowa and gives the state about $2.3 billion to help it cover low-income women and children, the disabled and the aged under Medicaid.

Dr. Mark Valliere, chief medical officer at Mercy Medical Center in Cedar Rapids, said about 57 percent of his hospital's income comes from Medicare and Medicaid, most of it from Medicare.

He said Iowa already receives very low reimbursement rates for medical services to Medicare patients so cuts in that program will have a disproportionate effect on the state.

“The end result is that doctors will end up dropping Medicare patients left and right,” he said.

David Roederer, head of Iowa's Department of Management, said Iowa is well-positioned financially to cope with a drop in federal money. But the uncertainty about how those cuts will be distributed makes it more difficult for the state to plan its budgets.

“Obviously it's a challenge,” Roederer said. “We have to be prepared for an unlimited number of scenarios.”

Defense contractor Rockwell Collins is also trying to adjust to the new budget realities in Washington, company spokeswoman Pam Tvrdy said. Under the debt ceiling agreement, the Pentagon's budget would be cut by at least $350 billion over the next 10 years - and possibly much more.

“We've certainly anticipated the decline in defense spending and have adjusted our numbers,” she said.

Tvrdy said Rockwell Collins' non-defense clients will help make up for the loss of Pentagon dollars.

But she said congressional failure to reach an agreement this fall could present a “big challenge.”

“We certainly hope Congress' negotiations will go smoothly, but that remains to be seen,” Tvrdy said.