‘We need contingency plans,’ warn state and federal budget experts
By Brian Hendershot, Cal Cities Advocate managing editor
City officials hoping for a silver lining or magic bullet to the federal funding crisis found neither during a special session at the City Leaders Summit on Wednesday.
According to Scott Graves, the budget director for the California Budget and Policy Center, federal funding makes up about a third of the state’s budget. Most of that funding goes toward Medi-Cal — money that House Republicans have proposed cutting.
A significant portion also goes toward childcare, education, and social safety net programs.
“There are a lot of Republicans who don't necessarily want to see that happen to their constituents, including from California,” said Graves. “Who's going to be able to say no to President Trump? That's what this is really going to come down to.”
Mike Wallace, a legislative director with the National League of Cities, noted that there is a lack of institutional knowledge at the federal level about what local leaders do — including their role in carrying out federal laws. He played a key role in designing and implementing the American Rescue Plan Act.
President Donald Trump has issued 185 executive orders since taking office. According to Wallace, although none of them directly target cities, many indirectly target city priorities.
This includes funding for programs that do not align with the administration’s agenda. Although the courts reversed an earlier attempt to unilaterally halt most federal spending, situational program freezing is in effect.
“The only chance we really have is to be very vocal about what these different cuts would mean for your city,” Wallace urged. “It's important for small cities to elevate their voice … not [because] small cities are more conservative. It's really because senators understand that large cities have access to lots of capacity.”
He said it’s often up to senators to step in and preserve funding streams. If cities want them to act, they need to educate their federal representatives.
The earliest Congress could pass a budget — and reduce some of the uncertainty — is this summer. Both speakers argued that timeline is very optimistic. Either way, federal lawmakers won’t send a budget to the President until after California passes its budget for fiscal year 2025-26.
“We need contingency plans,” Groves advised. “This is going to be a very cautious May Revision, and that's probably putting it mildly, in part because we don't know what's happening with federal funding.”
Tariff threats and policies have sent the stock market plunging, which is particularly bad for California. The state’s revenue relies on personal income taxes, which depend in part on capital gains generated through the stock market.
“These are not politically easy, or even morally easy questions to answer,” he warned. “It's not the kind of thing where they're going to be able to turn around on a dime and say, ‘Oh, we’re going to have $10 to $20 billion in cuts to our Medicaid program in California.’”
Wallace also warned that just because the funding exists, doesn’t mean that it will actually go out. Funding could be effectively frozen if the courts uphold Elon Musk’s efforts to slash the federal workforce through the Department of Government Efficiency initiative. Indeed, more cuts, consolidation, and wind-downs of major federal agencies and programs are likely.
Wallace also noted that these cuts undermine the momentum NLC and others have built over the years around direct funding. Congressional leaders could also remove the tax exemption for municipal bonds.
In short, local leaders are caught between the crossfires of larger political fights and will be expected to do more with less support. Wallace urged local leaders to rewrite federal grant applications and reports so they do not conflict with the Trump/Vance agenda. And to contact their congressional delegation about the impact of federal dollars before they are lost.
“There are lots of wild ideas out there on how to limit what is traditionally your role in terms of decision-making,” he said.