Over the past year, Congress and the administration have taken up the issue, on numerous occasions, of federal budget deficit reduction. Many state and local officials understand the need for, and are supportive of, efforts to reduce the long term federal deficit. However, many state and local officials also have concerns about the way in which such actions will be implemented and believe it is important to understand the consequences of certain decisions. States are concerned about the impacts from disproportionate cuts to discretionary spending programs and secondly, cuts to entitlements, specifically Medicaid. States spent more than $220 billion in federal Medicaid funds in fiscal year (FY) 2010 alone, the latest year for which data is available. Focusing on these two primary areas, below is an overview of how developments concerning actions to reduce the federal government’s long term budget deficit may affect states and the signifi cant amount of uncertainty that remains.

Possible Impact on States of Federal Deficit Reduction