A high-stakes debt ceiling standoff in Washington could have spillover effects on state spending plans that rely heavily on federal aid to fund a variety of social programs and transportation projects. States across the country are dependent on a steady flow of cash from the federal government to supplement their own tax revenue, but that pipeline of financial assistance is at risk amid a looming deadline for Congress to avoid the nation’s first ever default. Policy experts say failing to suspend or raise the debt limit could disrupt spending at the state level, particularly with regard to the recently enacted $1.2 trillion infrastructure law. “The fact that places are in better fiscal shape than they were expecting to be in makes the direct effects a little less imminent, but it will have big effects if places are trying to think about using any of that infrastructure money” or money earmarked for social services, said Kim Rueben, who specializes in state and local government financing at the Washington-based Urban Institute. “And so partly we're playing this game of chicken with what feels like a nuclear bomb. We really need the debt limit cap to be increased because of what it is going to broadly do for the economy — [a default] could have a negative effect on state and local governments, but it can also upset all sorts of other financial markets and banking.” The federal government provides about $750 billion in annual aid to states, funding programs ranging from Medicaid, which covers about 75 million Americans, to food stamps, used by about 42 million households. It also includes funding for schools, roads, transportation and various housing programs for low-income families. Many of the states that rely the most on federal funding — over 40 percent — are Republican-led states such as Alaska, Louisiana, Mississippi and Montana, largely due to low tax rates. Some Democratic-led states also get a significant chunk of federal dollars: About 36 percent of New York’s budget comes from federal aid, while California sees about 30 percent of its budget supported by Washington. “Every state relies on federal funding for a pretty good portion of their budget,” said Rebecca Thiess, a state policy expert with Pew Charitable Trusts. “Since the Great Recession, federal funding has remained essentially a third of state budgets. So, if you think about where states get their money from — it's from taxes, it's from fees, local funds, service charges — but then the federal governmen . . . read the full article here.