Utah’s Federalism Commission heard stark warnings Nov. 20 from national fiscal experts who said growing federal interest costs and impending shortfalls in Social Security and Medicare trust funds will push lawmakers in Washington to protect those entitlements and shift the pain from federal to state programs.

Jessica Bridal of the Manhattan Institute told the commission that current federal deficits — roughly $1.8 trillion annually under current conditions — could climb materially over the next decade as interest costs rise, squeezing discretionary spending that funds Medicaid, education, transportation and other programs states rely on. "In order to keep Social Security and Medicare flowing ... they're coming after you," Bridal said, describing how Congress historically protects large entitlement programs and targets discretionary grants in consolidation deals.

Why it matters: About a quarter to a third of many state budgets is federally sourced. Experts said states that wait until a crisis are likely to face smaller negotiating leverage and larger fiscal exposure.

The experts advised a suite of state actions aimed at reducing exposure and increasing negotiating power. Bridal urged states to secure flexibility through federal waivers, seek devolved revenue sources (for example portions of the gas tax) to match spending responsibility, and consider block-granting K–12 or welfare programs to preserve state-level control. "If they're not gonna pay for it, I think states need to secure flexibility," she said.

Veronique de Vrouges of the Mercatus Institute and Jack Salmon (also Mercatus) gave complementary warnings that markets — not only fiscal math — will determine timing. Veronique said the crisis point will come "the moment investors lose faith in the ability of the federal government to actually pay back the commitments they're making," a shift that could rapidly reprice debt and create sharp inflation and higher servicing costs. Salmon recommended dashboard metrics states should monitor, including treasury yields, debt maturity structure and the political appetite for federal reform.

State officials asked practical questions about which congressional reforms are politically viable. Bridal and other witnesses said that while many ideas (including block grants or a comprehensive Medicaid/education swap) have historical precedent and supporters on the Hill, short-term politics — campaign promises to protect entitlements — make large-scale federal reform difficult absent a crisis.

What Utah officials plan next: The commission voted to open a commission bill file on contingency planning and authorized a working group to draft options. Staff and presenters recommended stress-testing state programs, expanding the size and flexibility of rainy-day reserves and increasing legislative review of large or multi-year federal grants.

Speakers quoted in this article are drawn from the Nov. 20 Federalism Commission hearing (presenters included Jessica Bridal, Veronique de Vrouges and Jack Salmon). The commission is expected to refine draft contingency proposals in December and to continue work on dashboard indicators for early warning signs.