Interactive Map: No Debt Limit Increase Means Big Cuts to State Services
On August 2, if Congress fails to raise the debt limit, the United States will have its credit rating downgraded, interest rates will likely rise dramatically, and the federal government will be forced to immediately cut nearly 40 percent from its budget, which could plunge the American economy back into a deep recession. The damage will be enormous, and no sector of the economy will be immune—least of all, the states.
Each year the federal government funds hundreds of billions of dollars in state services. These include employment and training programs, emergency fire services for rural communities, hazardous waste removal, wildlife conservation, health care services, and even programs to provide bulletproof vests to local law enforcement, to name a few. In fact, state governments rely on the federal government for between 25 percent and 50 percent of their revenue. These services will find themselves on the chopping block if the debt ceiling is not raised.
We don’t know which state programs would be cut, but the Bipartisan Policy Center, or BPC, has outlined two scenarios for how the Treasury Department might prioritize payments for certain programs over others if the debt ceiling isn’t raised. In the first, Treasury prioritizes payments on big-ticket items such as Social Security, Medicare, Medicaid, and defense. In the second, Treasury still protects Social Security, Medicare, and Medicaid, but swaps out defense for important safety net programs such as food stamps and special education grants.
States stand to lose big under either scenario. We used Census data from 2009 on federal spending for state grants—the most recent year available—and monthly Treasury reports to estimate the amount of federal funding each state could lose under both BPC scenarios assuming the debt ceiling remains frozen throughout August and September. The results weren’t pretty. Altogether, states could lose up to $56 billion in funding just in those two months under the first scenario and $36 billion under the second.
The map above shows that no state would be spared by these cuts. Each stands to lose hundreds of millions of dollars in federal funding if the debt limit isn’t increased regardless of how Treasury decides to prioritize payments.
Michael Linden is the Director for Tax and Budget Policy and Jordan Eizenga is a Policy Analyst at American Progress. Jessica Liu and Zach James, interns for Economic Policy, provided instrumental assistance with data gathering and analysis.
- Debt Limit Uncertainty Is a Drag on the Economy by Michael Ettlinger
- Frozen Federal Debt Could Do Serious Damage to Economic Recovery by Michael Ettlinger and Michael Linden
- Failing to Raise the Debt Ceiling Would Threaten National Security by Lawrence J. Korb and Sam Klug
- U.S. Debt Limit 101 by Jordan Eizenga
To speak with our experts on this topic, please contact:
Print: Liz Bartolomeo (poverty, health care)
202.481.8151 or firstname.lastname@example.org
Print: Tom Caiazza (foreign policy, energy and environment, LGBT issues, gun-violence prevention)
202.481.7141 or email@example.com
Print: Allison Preiss (economy, education)
202.478.6331 or firstname.lastname@example.org
Print: Tanya Arditi (immigration, Progress 2050, race issues, demographics, criminal justice, Legal Progress)
202.741.6258 or email@example.com
Print: Chelsea Kiene (women's issues, TalkPoverty.org, faith)
202.478.5328 or firstname.lastname@example.org
Print: Benton Strong (Center for American Progress Action Fund)
202.481.8142 or email@example.com
Spanish-language and ethnic media: Jennifer Molina
202.796.9706 or firstname.lastname@example.org
TV: Rachel Rosen
202.483.2675 or email@example.com
Radio: Sally Tucker
202.481.8103 or firstname.lastname@example.org