Nussle’s Revenge: Bush Budget Director Strikes at State and Local Governments

Yesterday Senator Judd Gregg, the Senior Republican on the Senate Budget Committee, called the budget submitted by his party’s president an "academic, pro forma" product of "smoke, mirrors" and "incomplete numbers." But there’s one important theme to the package that Gregg should recognize as the handiwork of Jim Nussle.

Gregg knows the architect of that budget, Office of Management and Budget Director Jim Nussle, better than almost anyone. He spent the better part of 2006 trying and failing to reach an agreement with Nussle on a Republican budget blueprint that both houses of Congress could agree to, and that would allow the annual spending bills to move forward. Nussle’s unbending style resulted in delaying passage of all but a few appropriation measures until Democrats took over the Congress in 2007.

But Gregg may be wrong in saying that the budget has no theme or policy direction. There is at least one unifying dimension to Nussle’s 2009 budget—hammering the fiscal solvency of state and local government. Details of that hammering are laid out in a table that begins on page 116 of the analytical perspectives volume of the White House budget documents.

The table lists the proposed spending level for various programs that assist state and local governments, organized by major budget categories such as transportation and health, and compares the proposed level of spending for next year with the level that the president and Congress agreed to in December. If one looks at the budget authority requested for discretionary programs there is a decline in every single category.

Federal support to states and localities for energy programs declines from $227 million to $59 million. For natural resource programs such water and sewage treatment, funding declines from $4 billion to $3.3 billion. Community development programs, such as development block grants, are cut from $15.4 to $7.1 billion. For Justice Department assistance programs, such as the COPS assistance to local law enforcement, support is cut from $2.5 billion to less than a $ 1 billion.

Similar cuts occur in assistance to states and localities for health, agriculture, transportation, education, income security, and so on. The president’s 2009 budget proposes to cut discretionary payments to states by almost $13 billion, but the overall hit on state and local government finance is even greater.

The reason: Proposed mandatory spending changes in programs such as Medicaid will shift more of the growing cost of those programs back on local government. What’s more, perhaps the biggest hit is from federal funds distributed to the states under the Highway Trust Fund. While the collapse of the I-35 bridge in Minneapolis drew greater public attention to our national failure to simply maintain—much less expand—our nation’s infrastructure, the administration is proposing to cut funding to the states from the Highway Trust from $38 billion in the current year to $10 billion next year.

Since the White House classifies this spending as mandatory, the proposal itself demonstrates that highway spending is indeed discretionary. When added to the cuts in other discretionary programs it pushes the hit to nearly $23 billion.

Loading such a huge burden onto state and local governments might be a debatable option in a period of rising employment, increased property values, and growing corporate profits. But states are now under increasing pressure to provide services to counter the consequences of the economic downturn, and they must find ways to produce those services with weakening revenue collections from sales and income taxes, alongside a potential collapse of revenues from property taxes, a mainstay of state and local finance.

One must wonder how Nussle himself would have dealt with such a situation if he had not been badly defeated a year ago last November in his race to become governor of Iowa. He appears to see his new job as an opportunity to provide a little payback to the victor of that race, Iowa Governor Chet Culver.