LITTLE ROCK — Automatic federal spending cuts scheduled to take place in January would result in Arkansas losing $54.9 million in funding for a variety of programs, state officials said this week.
Among the possible reductions if Washington doesn’t avert the “fiscal cliff” are financial aid for college students, heating assistance for poor Arkansans and child-care subsidies for lower-income families.
The cuts will occur automatically if Congress and the president fail to reach a budget deal by year’s end.
If the cuts happen, state officials say they won’t be able to make up for the shortfall.
Also, they predict that the sharp budget cuts will snuff out the nation’s weak economic recovery. Typically, that would mean higher unemployment, more demand for social services and less state tax revenue at a time when it is needed the most.
“We’re moving forward, but all of our agencies have been warned that we will not be supplanting lost federal funds with state funds,” said Brandon Sharp, budget administrator for the state Department of Finance and Administration.
Sharp said if the governor or Legislature does not intervene, “we will reduce the programs to match the funding that’s provided.”
Stacey Hall, a spokesman for Gov. Mike Beebe, said in an e-mail that there is no state money to shore up the existing federal programs.
She said if the cuts kick in, “prioritizing of programs” will occur.
The Budget Control Act of 2011 requires Congress and the president to eliminate $1.2 trillion in spending over the next decade.
If they fail, across-the board cuts will be made in nonexempt discretionary spending programs.
The process is called sequestration.
The Congressional Budget Office defines sequestration as “an enforcement mechanism by which the President orders the cancellation of budgetary resources in amounts sufficient to eliminate a deficit.”
In total, 28.85 percent of the state’s current fiscal-2013 budget comes from federal funds. The automatic cuts would be in nondefense discretionary spending that the state receives and would total $54.9 million, Sharp said, citing a report by the Federal Funds Information for States, a subscription service that measures the impact of federal fiscal decisions on the states.
Richard Weiss, director of the Department of Finance and Administration, said the state could see a 3.5 percent to 4 percent drop in gross domestic product in the first half of 2013, and “if nothing was done to resolve it, we would be pretty strongly affected.”
“The big issue for us would be the drop in GDP,which would really throw us into a recessionary kind of a period for at least half of a year,” Weiss said.
Nationally, the cuts would be $98 billion, with states that receive a higher percentages of federal funds feeling the brunt of the blow, according to a Pew report released this month.
The report states that the national average of federal grants subject to sequester as a percentage of state revenue is 6.6 percent, compared with 6.2 percent in Arkansas.
Overall, 18 percent of federal grant funds are subject to sequester, according to the report.
The state with the lowest percentage of grants subject to sequester as a percentage of its revenue is Delaware with 4.8 percent, while South Dakota, the highest, is 10.3 percent.
Some states’ tax codes automatically change when those of the federal government are adjusted, meaning they will feel a double blow.
But Tim Leathers, deputy director of the state Department of Finance and Administration, said the Arkansas tax code is adjusted every two years and will not automatically change if the federal tax code does.
Thirteen grants would be reduced by $1 million or more in the sequestration, including $5.3 million in the Women Infants and Children nutritional program and $2 million used to defray administrative costs for the Unemployment Insurance Program.
EDUCATION
The Department of Finance and Administration projects seeing the biggest cut in Title I grants, totaling $11.9 million.
Such grants are awarded to improve academic achievement in areas that have high percentages of low-income families.
Arkansas Education Commissioner Tom Kimbrell said the state has not received a thorough accounting of which grants would be affected and at what costs, but he said the funds received by the agency and the individual school districts could be reduced by 8 percent to 9.5 percent.
“It’ll be a tough cut,” Kimbrell said.
The commissioner said the individual school districts could move grant funds around to cover certain needs that wouldn’t be met after the sequester as long as the new uses fall under the grant requirements.
Kimbrell said it is too early to tell how many positions might be lost because of the lack of funding.
HIGHER EDUCATION
The cuts would also extend to higher education, where Pell grant funding would be reduced and work study jobs would be cut.
Shane Broadway, interim director of the state Department of Higher Education, said Pell grants would not be affected until the 2013-14school year, when the grants would be reduced by $310 per student. The next year, the grants would be reduced by $400 per student.
According to the U.S. Department of Education, 85,779 students in Arkansas received Pell grants in 2010-11, the most recent figures available.
Broadway said about 170 work-study jobs would be cut with the sequester.
But, he said, the cuts could go further by reducing research funding at the state’s four-year universities - including the University of Arkansas for Medical Sciences - and forcing poor people to forgo college. That would consist of “some who are already in the pipeline, some who are just wanting to enter college.”
“It would certainly have an impact,” Broadway said.
DEPARTMENT OF HUMAN SERVICES
The state Department of Human Services faces a reduction of $7.58 million in grant funding if the automatic spending cuts take place.
Among the affected programs would be the Low-Income Home Energy Assistance Program, which would take a $2.2 million cut, according to information provided by the department.
Amy Webb, a spokesman for the department, said in an e-mail that the program cuts would mean the state would provide only a winter heating program, assisting families with heating costs in the colder months, and would not have a summer program.
A Children and Family Services Division program called Promoting Safe and Stable Families would be reduced by $303,000. Webb said 30 paid positions would be eliminated through attrition.
The department’s Child Care and Development Block Grant would see a reduction of $2.2 million, which “would likely mean that about 500 working, low-income families that receive financial assistance to help them pay for child care would not receive that assistance during the next fiscal year,” Webb said.
Front Section, Pages 1 on 11/23/2012