Photo: Samuel Corum/AFP/Getty Images
Much of the media coverage of Donald Trump’s turbulent second-term agenda has understandably focused on how it affects the individuals who work for or directly benefit from the federal government and its programs. But it will soon become very apparent that some of the most dramatic effects will involve the impact on the state and local governments that Washington depends on to actually carry out most domestic governance responsibilities.
Many years ago, when I worked in federal-state relations in my home state of Georgia, we used to say that the Feds really didn’t do anything other than “write checks, issue regs, and fight wars.” That’s still true, to a considerable extent. Purely individual benefits programs aside (the “write checks” part of governing), most of what we associate with domestic governance is either controlled by states and localities or is created and at least partially funded by the federal government and actually administered elsewhere (most often by the states).
So when a federal administration decides, as Trump 2.0 has, to massively restructure and reduce educational, environmental, health-care, housing, immigration, income-maintenance, and transportation programs, among others, there are vast consequences for its intergovernmental partners down the federal food chain. And because states, in particular, have their own budgets and bureaucracies to manage, the kind of chaos and systemic damage we’ve seen across the federal government the last 100 days or so will continue to extend to state capitals. An piece from Bloomberg explains how much secondary carnage we can expect:
State and local governments — in both Republican and Democratic strongholds — rely on federal dollars for the infrastructure investments, social programs and other projects that undergird their economies. Now, a wide swath of the $1 trillion in annual grants they receive from the federal government is under threat, creating deep uncertainty just as Trump’s trade war has raised fears of a punishing recession.
This point about the trade war is important to keep in mind. Aside from losing grant revenues from a budget-cutting spree in Washington, state and local governments can suffer major tax-revenue losses (plus rising demands for assistance) if the Feds screw up the economy. And reduced federal grants don’t necessarily mean a relaxation of federal requirements accompanying smaller pots of assistance from Washington. “Unfunded mandates” are a chronic problem for states and localities, and sometimes federal cuts place them in a position of choosing to cut services and benefits or somehow make them up from their own limited resources (limited, above all, by balanced budget requirements, which are quasi-universal for states).
Above all, the same sort of uncertainty that plagues federal employees is being abundantly shared with the state and local administrators of federal programs, notes Bloomberg:
It is difficult for state and local governments to assess how much funding is truly at risk. The future of Musk’s DOGE initiative is uncertain, and Republicans on Capitol Hill are wrestling with how to meet spending cut targets in an upcoming budget package. At the same time, some of Trump’s funding-related executive actions are being challenged in court.
But in the first full month of the Trump administration, there were signs of a pullback: The US in February made just $4.3 billion in new, binding funding commitments to state and local governments, a 57.5% decline from the same month a year earlier, according to a Bloomberg News analysis of federal spending data.
In addition, the cuts and cost shifts can come from multiple directions. Most federal-state programs fall into the category of “nondefense discretionary” spending and are subject to annual appropriations from Congress. Some already suffered cuts in the stopgap spending bill enacted by Congress in March. Others will likely get whacked in the appropriations bills congressional Republicans are working on right now. The president’s preliminary budget for the fiscal year beginning in October proposes cuts in nondefense discretionary spending of 23 percent, which is pretty big. But Office of Management and Budget director Russell Vought, who really wants a significantly smaller federal government, could accelerate those cuts by clawing back current spending with “rescission” proposals that Congress would have 45 days to approve or kill. And Vought strongly believes Trump has the right to “impound” previously appropriated money for grant programs at will; that’s one of the rationales (along with claims of specific presidential powers over certain policy areas) for the vast number of funding freezes, employee layoffs, and refusals to pay contract invoices that have characterized Elon Musk’s DOGE attacks on the “deep state.”
But the biggest threat to state budgets in particular could come from an attack on “mandatory” spending programs via the GOP’s “big, beautiful” budget reconciliation bill, designed to cut taxes and offset the lost revenues with cuts in entitlement programs. And the entitlement program with the big target on it is Medicaid, the joint federal-state program that provides health insurance for over 70 million Americans.
That’s a huge problem for the states. According to Bloomberg’s numbers, Medicaid represents about two-thirds of total federal grants to state and local governments ($655 billion out of $981 billion). Even small changes in the rules governing Medicaid could have a big impact on state budgets. And some of the proposals kicking around Washington for achieving Medicaid “savings” (somewhere north of $700 billion are required by the budget resolution the House passed) would definitely shift costs to the states, particularly the 41 states that accepted the optional Medicaid expansion created by the Affordable Care Act (which conservative Republicans still hate). But even if, as some analysts expect, “moderate” Republicans block a blatant Medicaid cost shift, anything that reduces Medicaid eligibility (e.g, work requirements or constant redetermination of eligibility) will put states in the position of deciding whether to let their citizens lose benefits or somehow finding the money to pay for them with less federal support.
On both the nondefense discretionary and Medicaid fronts, the Trump agenda is putting Republican state and local elected officials in a tough spot. Many, of course, will lead cheers for budget cuts out of general loyalty to Trump, and some, in fact, may on ideological grounds enjoy watching constituents suffer nearly as much as Musk and Vought relish the pain and chaos. But others may quietly lobby for relief. One to watch is Republican Governors Association chairman Brian Kemp of Georgia, the term-limited political powerhouse who has never shrunk from a fight with Donald Trump and has given himself a bit of a reprieve from partisan pressure by passing up a 2026 Senate race. It’s worth noting that Kemp is from one of the nine states that have persisted in refusing the ACA Medicaid expansion. But some of his Republican colleagues from states at major risk from Medicaid cuts will undoubtedly encourage him to stand up for those too fearful to stand up for themselves.
