"We've entered an era of chaos and confusion"
4 takeaways for state and local governments after Trump's first two weeks in office.
Welcome back, readers. It's been quite a ride these past 12 days. President Donald Trump's onslaught of executive orders and actions since taking office Jan. 20 has led to lots of “drinking through the firehose” analogies and on Friday, we released an emergency episode of the Public Money Pod discussing the impact so far with a panel of state and local government stakeholders.
I strongly encourage you to listen to the episode and you can do so by clicking the preview image below. But I also wanted to use this newsletter to highlight some of the big takeaways from the conversation because I'll come back to these topics a lot over the coming months and years.
This is just the beginning
President Trump's executive orders have not only threatened federal funding flows to states and localities, but the orders have also affected their operations by stepping up immigration raids and their potential scope, pausing funding for nonprofit partners, among other impacts.
"We've entered an era of chaos and confusion," said Lisa Washburn, chief credit officer and managing director at Municipal Market Analytics. "It's almost putting state and local governments on notice that they're going to be playing whack-a-mole right now."
Carolyn Bourdeaux, former U.S. Representative from Georgia's 7th district, said her "inbox has been flooded" with messages from local officials and nonprofits trying to understand how best to respond—or pleading for help. For example, she said, a childcare center in a rural area had to close because they can't make payroll after their federal grant was paused.
"This just is the opening salvo of what's going to be coming down the pike in the years to come," said Bourdeaux, who is now a Senior Visiting Scholar at the University of Georgia School of Public & International Affairs.
Trump Executive Order Tracker | Akin Gump Strauss Hauer & Feld LLP
Second judge temporarily blocks federal funding freeze efforts by Trump administration | PBS News
Federal dollars pay governments back for money they've already spent
An important element here is that most federal funding is done on a reimbursable basis. Governments—and nonprofits—essentially "show their receipts" and then get paid back per whatever agreement is in place. With payments now paused, governments and stakeholders are left holding the bag without any clear line of sight on when (or if) they'll get that money back. This also puts planning and expectations in limbo.
While major entitlement programs like Medicaid and Medicare appear to be exempt, there's still a ton of uncertainty around things like children's health insurance, social services, and higher education research. In short, the partial funding pause has created a government shutdown-like situation for millions of people.
Trump’s Medicaid disruption threatens vital resource for millions of Americans | The Guardian
Head Start, other services hit glitches as Trump freezes funds - WHYY
Proactive fiscal management is critical
All the panelists advised that governments and nonprofits take stock of where federal dollars touch their budget, as well as assess how different scenarios could affect their operations or bottom line. They also noted that having liquidity during times of uncertainty is a "must" and that governments should do a cash-flow analysis that includes taking stock of all available reserves.
Noah Winn-Ritzenberg, senior director of public finance at the Volcker Alliance, added that states and localities have to look beyond their own budgets to the broader impact. For example, some may need to determine where they will take on additional responsibilities to cover nonprofits that are no longer receiving funds. "The ambiguity and the potential for sort of compounding effects is really concerning," he said.
This could all backfire
Though many of the actions over the past two weeks are intended to lower costs to taxpayers and increase government efficiency, they could have the opposite effect.
Federal funding related to green infrastructure has been paused, creating uncertainty around projects across the country related to electric vehicle charging infrastructure and climate change preparedness, among other areas. To the extent that those uncertainties translate to construction delays, project costs will rise for states and localities and taxpayers will ultimately get less bang for their buck.
The same threat to efficiency exists with the administration's desire to dramatically downsize the federal workforce. If that effort succeeds, not only could it create a chilling effect on attracting talent for the jobs that do remain, it could easily slow down the federal government because there will be fewer people administering grants and programs to states and localities.
"Not only are you disrupting this all the way down the chain and discouraging the current workforce and the next generation," Winn-Ritzenberg said, "but you're also actually going to end up increasing the costs and decreasing the efficiency [of] government."