Gov. Butch Otter began asking agency chiefs last month to start planning for reductions in federal aid, which supports more than one-third of state spending.

“I’ve asked them to factor in a 20 percent cut in their federal funds and then come back to me with an action plan on what we’re gonna have to do,” Otter said in a speech last week to the Idaho Association of Commerce and Industry.

“I want us to be ready because there is a lot of importance to those federal funds,” Otter added. “They do a lot of great things. But those things are going to have to be prioritized because I can’t fathom, nor would I ask the Legislature to replace, all of those federal funds that are not going to be coming to Idaho.”

Sen. Mike Crapo, R-Idaho, a member of the “Gang of Six” that has played a key role in federal debt and deficit talks, praised Otter. “I think it’s very wise advance planning.”

Crapo said he hadn’t heard the 20 percent figure — the White House has asked federal agencies to plan for 10 percent cuts — but said anticipating a higher number is proactive. Crapo said it’s unclear what will happen after the November election in a lame-duck Congress dealing with expiring tax breaks and the hammer of “sequestration” mandating $1.2 trillion in cuts over nine years, that could begin in January.

“If Congress acts prudently, cuts to the level of 20 percent probably won’t happen,” Crapo said. “If Congress doesn’t act prudently, we could see a huge economic collapse. So, it’s hard to know.”

‘WORST-CASE’ TARGET

The 20 percent figure was suggested by Lt. Gov. Brad Little as a worst-case scenario. Little said his hunch is Congress will strike a deal that puts cuts closer to 10 percent. “If you did 20 percent, you’d have so much stress on the economy that it would slow the economy and make the numbers even worse,” Little said.

“We don’t want to have a gun pointed at our heads like some other states where you turn a bunch of prisoners out, go to four-day-a-week schools and close all the parks,” Little said. “We can do this if we’re smart about it.”

Last week, Otter’s budget chief, Wayne Hammon, emailed agencies asking them to inventory all federal grants and report back by Aug. 1.

In an interview, Hammon was quick to say no decisions have been made. “When we receive this information, we will have it ready should cuts come from (Washington) D.C. Until then, the information will be kept at the ready and updated as conditions change. But I want to stress — the governor has not ordered any cut.”

House Minority Leader John Rusche, D-Lewiston, heard Otter’s speech last week and said he reads his aim to be partly political — blaming President Obama and Senate Democrats for failing to pass a deficit reduction plan. Otter, who co-chairs Mitt Romney’s Idaho campaign, also told IACI that winning the White House is vital.

But Rusche said planning makes sense. “If we get ourselves ready and look at what the consequences are, we can make better decisions.”

He is concerned, however, that plans for 20 percent cuts could be adopted as a blueprint to further cuts in state spending “even if it’s proved not necessary. It’s hazardous in that regard, because that budget would be built on projected lower revenue rather than the need for service.”

RELIANT ON THE FEDS

Agency heads are just beginning to work on the 20 percent contingency.

At the Division of Vocational Rehabilitation — which helps about 2,000 of its disabled Idaho clients find work annually — Administrator Don Alveshere said he expects cuts under sequestration to be between 8 percent and 10 percent. “The 20 percent is an extreme contingency,” he said.

Voc Rehab gets 62 percent of its funds from the feds. Under federal rules, the level of service to 12,000 clients can’t be cut. Instead, the caseload would have to be reduced, Alveshere said.

“There is a lot of concern, but there are many things outside of our control,” Alveshere said. “So we need to plan and evaluate contingencies, but not overreact.”

At the Department of Labor, 98 percent of a $419 million budget is federal funds, mostly unemployment insurance benefits.

Chief Deputy Director John McAllister said the agency was already preparing for an 8 percent cut under sequestration, which would mean layoffs of 50 of the agency’s 550 workers who help the unemployed file claims and look for work. “The need isn’t going to drop, but the number of people we have to do it would,” he said.

Department of Environmental Quality Director Curt Fransen attended a May 30 Cabinet meeting where Otter discussed possible cuts. “At some point, these long projected federal cuts might come true,” Fransen said. “I look at it as a planning exercise.”

Three-fifths of the DEQ’s budget is federal, but Fransen predicts Congress will be wary of cutting too deeply because it’s politically popular to have states enforce federal mandates for clean air, water, hazardous waste and underground storage tanks.

BIG DOLLARS

Idaho’s biggest recipients of federal dollars, the Health and Welfare and Transportation departments, say planning is prudent. Transportation spokeswoman Mollie McCarty said road and bridge construction will likely suffer. Because transfers from the federal Highway Trust Fund are earmarked for paying off GARVEE debt — which paid for an ambitious state road-building program — the state’s discretionary road projects and maintenance would also be squeezed.

McCarty noted that it’s no surprise that Idaho “must become more self-sufficient rather than rely on the federal government to ensure a strong transportation system and economic future.”

At Fish and Game, a complex web of federal excise taxes on hunting and fishing equipment comes with strings attached. Under sequestration, Fish and Game calculates it would lose just $660,000 in a $93 million budget. But getting reliable information has proven difficult because policy decisions are up in the air, said spokesman Mike Keckler.

“We’ll get our plan together, do our best to be ready and hope for the best,” he said.

Dan Popkey: 377-6438, Twitter: @IDS_politics