White House Reaches Out to States as Debt Ceiling Impass Drags On

With the debt ceiling negotiations stalled, and the August 2 deadline looming, the White House convened a conference call on Wednesday, June 13 to lay out the President's position and explore the impact of the impasse on states.  The call, hosted by the White House Office of Intergovernmental Affairs, featured a discussion led by David Kamin, Special Assistant to the President for Economic Policy. 

Kamin emphasized that the President and GOP leaders on the Hill have both outlined plans for shaving federal deficits by roughly $4 trillion over the next 10-12 years, but the role of revenue remains at the heart of the impasse.  While Kamin would not elaborate on what specific cuts to state grants in aid are currently under consideration he stressed that the White House would not accept proposals by House leaders to achieve $770 billion in Medicaid savings by converting the program into a block grant system.  He did state that the President hopes to achieve Medicaid savings as part of a debt ceiling compromise.  However, he would not confirm if the White House is considering achieving these savings by blending or lowering FMAP reimbursement rates for states as has recently been reported.

Kamin did mention that a possible deal might follow the lines of the Clinton budget compromise of the 1990's where the administration and Congress jointly committed to limiting discretionary spending to a set limit per year, but without listing specific cuts to programs.  The 90's compromise hemmed in total discretionary spending, but left it to Congress and the administration to negotiate specific program cuts and changes each year.  Kamin indicated a new compromise may look similar with limited detail on discretionary cuts.  However, he emphasized that any cuts to mandatory spending (including Medicaid) would need to be spelled out in the deal.  As a result,  should a last minute compromise come through states will likely be able to see how the deal will drive their Medicaid costs, but will have to await the annual appropriations process to know the full impact on education, transportation, and other key areas of state aid.   

Meanwhile Senate Minority Leader Mitch McConnell has indicated that should both sides fail to reach a compromise soon, the GOP leadership would be willing to support legislation that would grant the President the authority to raise the debt ceiling unilaterally by up to $2.5 trillion in three separate increments.  Such legislation would put the onus on the President to raise the ceiling without achieving long-term cuts and allow Congress to pass resolutions criticizing the President's actions.  This so called "Plan B" scenario would ensure the limit is raised, forestalling default, while providing political cover to the GOP.  The White House has indicated it is open to this complex, but increasingly attractive, option.

At this stage it is too difficult to handicap how the impasse will play out.  However, with Medicaid savings looming large in both sides’ plans, it is clear that any compromise or "Plan B" option will have a long-term impact on state budgets.