Worse State, DC Budget Woes To Come If Extra Medicaid Funding Dies

Recent weeks have brought us several important updates on state-level budget woes and their impacts on our still-struggling economy and anemic job market.

First came the Commerce Department’s quarterly report on the gross domestic product–a common measure of the country’s economic health. Cuts in state and local government spending reduced the GDP increase rate by half a percent. This translates into a loss of about $72 billion in economic growth.

Then the National Governors Association and the National Association of State Budget Officers issued the results of their latest fiscal survey of the states. Bottom line here is that Fiscal Year 2010 “presented the most difficult challenge for states’ financial management since the Great Depression.” More of the same is expected in FY 2011.

States spent an estimated $74.4 billion less in FY 2010 than in FY 2008. But they would have had to make even larger cuts if they hadn’t received emergency fiscal assistance through the economic recovery act. The single largest part of this was a higher-than-usual federal match on states’ Medicaid costs (FMAP).

Then we got the Bureau of Labor Statistics’ employment figures for May. While nonfarm payrolls showed on increase of 431,000 employees, but all but 20,000 of them were temporary workers hired by the Census Bureau.

State and local government payrolls shrank by 22,000 jobs. The Center on Budget and Policy Priorities reports that this brings the total to 231,000 jobs shed since August 2008, including 100,000 in education.

The American Association of School Administrators estimates that an additional 275,000 education jobs will be lost in the upcoming school year–unless the federal government steps in with more emergency aid.

And here’s the kicker. According to a lengthier CBPP analysis, 29 states and the District of Columbia developed their FY 2011 budgets on the assumption that FMAP would be extended. Without the assumption, projected shortfalls–and, therefore, cuts–would have been even greater.

It was a reasonable assumption. After all, both the House and Senate had passed bills including a FMAP extension. But, as I recently ranted, the House leadership dropped the extension to garner the votes needed to pass its version of the Senate’s jobs/tax cut extender bill.

Now the Senate leadership has put the extension back into the bill, encouraged by outcries from governors and the National Conference of State Legislators.

It’s trying to corral the magic 60 votes needed for a substantive vote on the bill by easing the tax rates applied to hedge fund managers’ incomes and raising more revenues from oil companies.

Hard to tell whether this will work–or, if it does, whether Blue Dogs will again push back when the bill cycles back to the House.

If the FMAP extension fails, the District will have an estimated $77.6 million budget gap to close. Shortfalls identified in CBPP’s analysis range from $85 million in Maine to a whopping $480 million in Washington state.

No way these and other impending shortfalls will be resolved without larger public service job losses. Mark Zandi, an expert in the economics of economic recovery, says they could be at least as large as those we’ve already seen–”in all likelihood measurably larger.”

Do our business-friendly, deficit-minded members of Congress have a grasp on the impacts? We’ll find out soon, when the Senate votes on whether to proceed to a final vote on the jobs/tax bill.

Will the Economic Recovery Package Work?

Washington Post columnist David Ignatius observes that media coverage of the economic recovery package is like reports on a baseball game or tennis match. Will the legislation prove a win for Obama or for the Republican opposition?

We, the voting public, will provide the answer. And for most of us, I think, it will depend on what we believe the legislation is supposed to do. If we expect it to turn the economy around, then we’re likely to be disappointed. This is what the Republican leadership is banking on.

If we expect the package to help avert a greater crisis, then our verdict still hangs in the balance. After all, the package is only one component of a recovery strategy that’s still evolving. In the works now are foreclosure reduction legislation, the auto industry bailout and some still unspecified actions to deal with endangered banks. All these venture into uncharted waters.

And then there’s the fact that the economic crisis isn’t ours alone. It’s also affecting numerous countries that import U.S. products. So recovery here would seem to depend on what happens there.

This much seems fairly certain: Some major spending measures in the package will cushion hardships for poor and at-risk individuals and families. And income supports for them will generate immediate spending, which should give a boost to some types of retail businesses and their suppliers.

It’s also quite certain that the package will moderate the devastating cuts that state and local governments have been planning–and, in some cases, already initiated–in services for poor individuals and families.

For example, the Center on Budget and Policy Priorities reports that at least 28 states have proposed or implemented cutbacks in public health services and/or changed eligibility requirements to reduce enrollments. Some of these measures may be averted by the Medicaid provisions in the economic recovery package.

But crucial programs for homeless and other poor people still face tough days ahead as state and local governments struggle to balance their budgets. The shortfalls are large. The needs are great.

Yet at least six Republican governors are saying they may not accept all the funding available in the economic recovery package. They cite various objections–the impact on the national debt, loss of “state sovereignty,” pressures to maintain the higher funding levels once the federal infusion runs out. Three have specifically said they will reject the funding to expand their unemployment insurance programs.

The underlying concern, of course, is that they may have to raise taxes to provide for the basic needs of their poor constituents and others at risk of poverty due to the recession.

These governors obviously need to hear from constituents who believe these needs should be served, and they need to hear ASAP. Because the economic recovery package definitely won’t work unless it’s given a fair chance.