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Heartland States on High Alert Over Fiscal Cliff

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State and local officials in the US heartland are steeling themselves for the possibility of a major loss of tax revenue, federal aid, and grants next year.

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The bad news is that the more than $100 billion of automatic across-the-board spending cuts would deliver a serious blow to many states that have grown accustomed to substantial federal aid and procurement. This is particularly true in states such as Maryland, Virginia, New Mexico, Kentucky, and Hawaii that are home to substantial defense industry facilities and military installations and that benefit from much higher than average federal spending.

In Iowa, the projected loss of an estimated $52.9 million a year would include $9.3 million in special education funding, $6.4 million in education funding for low-income students and $4.5 million for Head Start pre-school programs - roughly a 7.5 percent funding decrease in each program. But the overall loss in federal funding would be only about 2 percent. That's because the lion's share of federal aid to Iowa is Medicaid for the poor, which is exempt from the across the board cuts or sequestration.

"That said, when certain programs are hit harder than others, those programs could lay off one or two staff members or shut down a program completely to reallocate funds to a different area within that field," explained Aaron Todd, a legislative analyst with the Legislative Services Agency. "So it does have real impact." He added, "In terms of sequestration, we're just kind of in the waiting mode. Like everyone else, we're trying to read the tea leaves."

Editor's Note: This article by Eric Pianin originally appeared on The Fiscal Times.

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