Wichita As the gridlock continues in Washington over the national debt, Kansas Gov. Sam Brownback said Wednesday his administration is making plans for "a substantial contraction" in federal money to the states in the event of a default.
The Republican governor told reporters that his administration has calculated the amount of federal money Kansas could lose, a number he termed as a "target." He refused to disclose that internal figure, saying only that it's a substantial number. Brownback said half the state's resources come from federal dollars.
The state had predicted it would receive about $3.9 billion in federal funds for its current fiscal year, which began July 1. About $2.2 billion of that would help finance social services programs, while another $948 million would go to the public school and higher education systems.
Brownback said it is questionable whether the federal government will actually default on its debt because there is cash flow to make the interest payments on the bonds, but making those bond payments will leave much less money for operating the rest of the government.
"That is what I'm focused on. We are looking at what we can and what we need to do to really cut down on and anticipate far fewer dollars, because that is what will actually happen to the states," Brownback said. "The bonds will get paid first because it will be a higher priority by the government, but they will then stop making transfer payments to the states."
The governor also says his office is not planning for across-the-board program cuts because the federally funded programs that would be cut will be determined in Washington.
"But we may look at saying, 'OK, we want to backfill this piece of this program because it is critically important to us, but there are others that we just don't have the resources,'" Brownback said. "And we don't have resources as a state to do a complete backfill at the federal level — it is a far larger number than we can possibly reach."
The governor didn't specify which state services he thought would the most vulnerable in the event of the loss of federal monies.
Kansas Senate Majority Leader Jay Emler, a Lindsborg Republican, said his contacts with officials in various state agencies over the past month indicate that they're drafting proposals to deal with cuts of up to 50 percent in their federal funds in the future.
"We have no idea at this point how much less might be coming," Emler said.
But Emler said officials haven't been specific about why they are looking at scenarios for a big drop in federal funds, whether it would be caused by a default itself or federal spending cuts.
Meanwhile, the Kansas Department of Transportation, which has relied on bonds to finance highway projects, doesn't expect to see a short-term effect on its borrowing. Spokesman Steve Swartz noted that KDOT issued $350 million in bonds in September 2010, with an interest rate of just under 3 percent, and doesn't anticipate having to issue more bonds for another year.
Deputy Secretary Jerry Younger said KDOT doesn't expect to stop or slow down highway projects currently under construction. However, he said, it might have to reconsider whether to commit immediately to projects that have been planned but not started. The federal government reimburses Kansas for expenses incurred on projects, and the issue would be how long the federal government would delay those payments. But Younger said KDOT isn't likely to know until after Tuesday.
"To be honest, we don't quite know what's going to happen if the debt ceiling isn't raised," he said.
At the state Department of Social and Rehabilitation Services, officials are considering whether they'll have to draw down some of their federal funds in advance. Spokeswoman Angela de Rocha said SRS normally draws those dollars down daily, as needed.
The state Department of Education expects to distribute about $7 million in funds on Monday, said Deputy Commissioner Dale Dennis. The state probably can cover other small payments normally made from federal funds during the first 10 days of August, he said.
But, he added, the department distributes federal funds each month and, "If it isn't solved by the end of August, we're in trouble."
Brownback, a former U.S. senator who left federal office to run for governor of his home state, said he was glad lawmakers in Washington were getting serious about balancing the federal budget.
"I am glad we are finally getting serious about it because we have to," he said. "If we don't get serious about balancing our own budget, the market takes over and they decide whether or not the federal government is worthy of credit. And if they decide it's not, they are going to raise the interest rates a lot and it is going to cost everybody."
That said, the Kansas governor said he thinks lawmakers should be able to come up with a real package of reductions that are serious and substantial.
"It is doable. Really. A few people need to sit in a room and hammer that out," Brownback said. "It is far harder to get it done and passed, than to hammer the agreement out. That is the issue and I would urge people, if you can get a good deficit reduction, pass it and let's start dealing with our debt."