House Stimulus Plan Wins State Praise

 

State officials got their first look of the massive economic package worth $825 billion that Congress promises to deliver next month to President-elect Barack Obama, and many liked what they saw.

House Democrats Jan. 15 released details of their version of a plan containing $550 billion in spending and $275 billion in tax cuts that they say will help pull the country out of a financial freefall compared by some experts to the Great Depression.

Crucial to states, the two-year package includes $87 billion to help pay for Medicaid, the joint federal-state program that costs $330 billion annually and serves 59 million needy Americans, and at least $100 billion for infrastructure spending - two top priorities of many governors and state legislators.

"Obviously they heeded our concerns," said Michael Bird, the National Conference of State Legislatures lobbyist in Washington, D.C. He said the package includes "ample funds to create jobs; help the most disadvantaged get through the recession and perhaps ease some of the really tough budget decisions that state legislatures are facing."

In a surprise to some, the proposed package also contains $79 billion aimed to prevent states from cutting into schools and college funding and another $41 billion to local school districts. While states and localities were asking for help on the education front, the levels were much higher than many had expected.

New state tax data to be released today (Jan. 16) show "a dramatic worsening of fiscal conditions nationwide" with an overall decline of more than 4 percent in state tax collections in the fourth quarter of 2008, according to Nelson A. Rockefeller Institute of Government, the public policy research arm of the State University of New York. The House proposal is only the first step in a long process and the dollar totals are almost certain to change. Both the House and Senate plan to work on packages next week and the two versions will have to be melded into one. Congressional Democrats hope to put a final bill on the president's desk in time for President's Day in February.

Here's a breakdown of the key components of the House proposal important to states:

  • $43 billion for increased unemployment benefits
  • $20 billion to increase the food stamp benefit
  • $30 billion for highway construction
  • $19 billion for clean water, flood control and environmental cleanup programs
  • $4 billion for state and local anti-crime initiatives, including $3 billion for the Byrne Justice Assistance, which pays for programs to battle drug trafficking

John Horsley, executive director of the American Association of State Highway and Transportation Officials , lauded the House leadership for including $30 billion for highway and bridge construction projects. "State Departments of Transportation, working with local governments, are ready to deliver hundreds of thousands of jobs and long term benefits through smart investment in transportation projects," he said in a statement . David Steingraber, executive director of the Wisconsin Office of Justice Assistance and president of the National Criminal Justice Association , likewise endorsed the House proposal. "Safe communities are the foundation of a growing economy, and increased Byrne JAG funding will help state and local governments hire officers, add prosecutors and fund critical treatment and crime prevention programs," he said in a statement .

Obama is expected to stump for his stimulus plan today (Jan. 16) in Ohio. He outlined more details, but not specific dollar amounts, during a Jan. 8 speech in which he said. "Government at every level will have to tighten its belt, but we'll help struggling states avoid harmful budget cuts, as long as they take responsibility and use the money to maintain essential services like police, fire, education, and health care."

An infusion of federal money to help states weather a faltering economy is not unprecedented. Congress in 2003 gave states $20 billion to help patch budget gaps after the 2001 downturn. Half of that amount was in federal funds to cover Medicaid costs, but to receive the federal Medicaid money, states had to avoid deep program cuts and preserve eligibility.

Governors, state and local officials of both parties have been lobbying Congress for months to help states. Republican California Gov. Arnold Schwarzenegger, for example, wrote to Obama that states need at least $100 billion for Medicaid costs. The Democratic governors from Massachusetts, New York, New Jersey, Ohio and Wisconsin have called for a $1 trillion in federal aid to all the states over the next two years.

Not everyone agrees that the federal government should dole out money to states and localities, however. Among the most vocal critics to state fiscal relief are South Carolina Gov. Mark Sanford and Texas Gov. Rick Perry, both Republicans.

Jonathan Williams, who heads tax and fiscal policy for the American Legislative Exchange Council , a conservative group that lobbies for limited government, said, "Uncle Sam is probably not in the position to be doling out this much money to the states," noting that the federal budget deficit is expected to hit $1.2 trillion for 2009.

He and other fiscal conservatives argue that states should have socked more money into their rainy day funds in anticipation of downturns.

States have been feeling the squeeze over the past year, even though it became official only on Dec. 1 that the U.S. economy is indeed in a recession. Unlike the federal government, which can run up deficits, most states must balance their budgets, and when states have to cut spending or raise taxes - as many are doing now - billions of dollars are removed from the nation's economy.

Economic relief was the focal point at the National Governors Association meeting last month in Philadelphia, where Obama promised to work with states in crafting a plan to create jobs.

 
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