June 25, 2010

Aid to States May Be Lost as Jobs Bill Stalls

By MICHAEL LUO and SARAH WHEATON

Financially struggling states, already facing record budget shortfalls, are now confronting the possibility of losing out on billions of dollars in federal aid that they had been counting on, if Congress does not revive a jobs bill that stalled in the Senate this week.
The result, governors and state budget officers are warning, could be hundreds of thousands of layoffs at the state and local levels, as well as draconian spending cuts.
“It’s a bloodletting,” said Gov. Edward G. Rendell of Pennsylvania, a Democrat.
But Mr. Rendell and other state leaders are running up against Senate Republicans and at least one Democrat concerned about the spiraling federal deficit.
“What we’re not willing to do, is use worthwhile programs as an excuse to burden our children and our grandchildren with an even bigger national debt,” the Senate minority leader, Mitch McConnell, Republican of Kentucky, said in a statement Thursday.
At issue is money from the federal government to help states foot the bill for Medicaid, the health care program for the poor, which had been part of last year’s federal stimulus package.
The enhanced financing for Medicaid was set to expire at the end of the year, but most states had been counting on at least six more months of aid that was to have been part of a legislative package that included an extension of unemployment benefits for the long-term unemployed.
That measure, however, stalled in the Senate on Thursday, with Republicans and a lone Democrat, Ben Nelson of Nebraska, combining to block a procedural vote needed to allow the bill to proceed.
It was a setback for Senate Democrats and the Obama administration. A White House official said Friday that the administration would continue to push the bill, but it was unclear where the votes would come from.
A total of 30 states had already factored the additional Medicaid money into their budgets, according to the National Conference of State Legislatures. Only nine states have come up with contingency plans. Most states begin their fiscal years on July 1.
The additional federal aid for Medicaid was initially supposed to be $24 billion but was later scaled back to $16 billion in the bill that stalled on Thursday.
Making the situation more difficult for states, the recent passage of the federal health care overhaul bars them from rolling back eligibility on Medicaid, so the cuts would have to come from elsewhere in their budgets — and would likely include layoffs from different parts of the state governments, many of which have already seen big cuts — or by slashing things like payments to Medicaid providers.
“If they don’t fund this, it’s an unfunded mandate on the states,” said Gov. Jennifer M. Granholm of Michigan.
Making up for the missing federal aid would add another half billion dollars to Michigan’s existing $1.5 billion budget shortfall, Ms. Granholm said on a conference call with reporters Friday.
Ms. Granholm said Michigan lawmakers would be forced to make “ugly cuts,” one of which would probably be a 35 percent cut in payments to Medicaid providers, which she said would harm medical access for patients.
“These are cuts that we have not even dared to put on the table” in the past, she said. “We don’t have too many choices here.”
Most states have already been through two or three rounds of budget cuts since the recession began, said Brian Sigritz, an official with the National Association of State Budget Officers.
State revenues are expected to be up slightly in the coming fiscal year compared with the last, but are still expected to be down about $54 billion since the recession began, said Mr. Sigritz.
Normally, he said, it takes five years for revenues to return to where they were before a recession.
“We saw this money as bridge money,” said Raymond C. Scheppach, executive director of the National Governors Association. “Our hope is we’re not in a double-dip, and we’re actually going to see some moderate revenue growth. We felt by 2012 it would be a bit better.”
Most states are legally or constitutionally required to balance their budgets, so the sudden shortfall puts them in an immediate bind. States already grappling with mammoth budget gaps would be in the most trouble.
In Pennsylvania, which is confronting a $1.6 billion revenue shortfall, the elimination of the additional Medicaid financing would mean having to come up with $850 million, Mr. Rendell said.
Because the state has already made more than $2.5 billion in cuts since the fall of 2008, when the economy went into a freefall, Mr. Rendell said layoffs were inevitable, not just at the state level but the local level.
“It’s going to be huge teacher layoffs, money to our universities, money to the counties and cities, municipal workers, firemen,” he said. “It would be enormously destructive.”
Mr. Rendell fretted that the resulting fallout from the loss of federal money would bring a halt to three straight months of job gains for the state.
“I know everyone cares about the deficit, and so do I,” he said. “But they care about the deficit until the cuts hit home.”
Mr. Rendell was conferring with other governors Friday about going to Washington to lobby for the measure.
Gov. Arnold Schwarzenegger of California, which would lose out on $1.8 billion in financing, said Friday that the failure of the bill was “disappointing” but added, “it’s not over yet.”