By Suzanne Wikle 

Congress is setting state policymakers up to face incredibly hard decisions about everything from health care cuts, deciding who should go hungry, and supporting their rural communities.  

Both the Senate and House of Representatives have put enormous budget cuts on the table. The House is planning to cut $2 trillion and the Senate has passed a budget resolution with $340 billion in cuts, with a second bill planned to cut more. Budget cuts of this size cannot be achieved without major reductions in core programs that provide health care, nutrition assistance, and other aid to tens of millions of people.  

Big Federal Cuts Mean Hard Decisions for States 

If the proposed Congressional cuts are enacted, states will see a significant reduction in federal dollars. This will directly impact state budgets and state policymakers will have to decide how to absorb the loss of federal dollars and what programs to cut.  

The House budget resolution calls for at least $880 billion in cuts from the committee that oversees Medicaid. Ideas proposed to reach this level of cuts include reducing the federal matching rate for Medicaid or capping federal expenditures through block grants or per capita caps.  

Medicaid is the largest source of federal funding for states. Cutting federal Medicaid funds by $880 billion over ten years would cut 11 percent of all federal Medicaid dollars to states. This chart details how much Medicaid federal dollars each state received in federal fiscal year 2023. 

No state can absorb that level of cuts and maintain their current Medicaid program. But it will be state legislators – not Congress – making the tough decisions of whether to reduce eligibility, slash provider reimbursement rates, and reduce benefits (non-mandatory Medicaid benefits for adults include dental, vision, and prescription coverage). In reality, it will probably have to be a combination of all three.  

Conversations in state capitols will be around how much longer to make waiting lists for waiver services, how much to slash provider rates and still expect them to participate in the program, and what benefits can be cut.  

It’s worth remembering that Medicaid covers more than 79 million people – about 1 in 4 people in the country. This includes 30 million children and more than 7.2 million seniors. The downstream effects of the Medicaid cuts will be significant. In addition to people losing their coverage, many health care workers, including home health aides, will lose their jobs. Nursing homes and rural hospitals will have more trouble keeping their doors open – and when hospitals in rural communities close it’s harder to keep doctors and other professionals in the community.  

And Medicaid is only one example of the enormous budget cuts being proposed by Congress. This scenario of forcing state policymakers to pick winners and losers will also play out with federal education cuts, including higher education and federal student loans, and more demand for other social services when federal funds are cut.  

Proposed cuts to nutrition assistance total $230 billion, meaning 230 billion fewer dollars being spent in communities buying food. This will hurt grocers and corner stores, which in turn are likely to reduce jobs and raise prices of food and other goods.  

Every dollar of food assistance spent creates between $1.50 and $1.80 in economic activity. Taking 230 billion food assistance dollars out of the economy will have far-reaching economic consequences while also causing hunger to skyrocket among tens of millions of people.  

The disappearance of federal dollars doesn’t make hunger go away, but it’s not feasible for states to fill the void these cuts will create. The result is that people will go hungry and food-related businesses, including truck drivers and packing plants, will take a hit. The downstream economic damage will hurt state revenues through less income and sales tax collections.  

Timing and State Budget Implications 

If Congress sticks to their timeline, these drastic cuts will go into effect starting October 1, 2025. For states who use a fiscal year from July to June, this timeline means that major reductions in federal dollars will start only 25 percent into the new state fiscal year. Most of those state budgets are being built right now, assuming no major changes in federal funding.  

State budgets will quickly be in the red, likely forcing governors to start cutting programs immediately or call special sessions for legislators to make cuts. And states have to balance their budgets–unlike Congress, they can’t spend more than their revenues.  

Why These Cuts? 

There is no need for these massive cuts to Medicaid, food assistance, and other critical programs. They are on the table in combination with the effort to extend tax cuts for a small number of wealthy people, which will add at least 4 trillion to our federal debt. These cuts are not only cruel to the people who need these programs in order to have health care and enough food to eat, but they are also positioning state policymakers to be the bad guys when reality hits and hard decisions have to be made.