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Governors vs. Congress

February 26, 2009

Debt-laden state governments were supposed to be the big winners from the $787 billion economic stimulus bill.  But at least five Republican Governors are saying thanks but no thanks to some of the $150 billion of “free” money doled out to states, because it could make their budget headaches much worse down the line.  And they’re right, says the Wall Street Journal.

These Governors — Haley Barbour of Mississippi, Bobby Jindal of Louisiana, Butch Otter of Idaho, Rick Perry of Texas and Mark Sanford of South Carolina — all have the same objection: The tens of billions of dollars of aid for health care, welfare and education will disappear in two years and leave states with no way to finance the expanded programs.  Gov. Perry sent a letter to President Obama last week warning that Texas may refuse certain stimulus funds.  “If this money expands entitlements, we will not accept it.  This is exactly how addicts get hooked on drugs,” he says.

Consider South Carolina:

  • Its annual budget is roughly $7 billion and the stimulus will send about $2.8 billion to the state over two years.
  • But to spend the hundreds of millions of dollars allocated to the likes of Head Start, child care subsidies and special education, the state will have to enroll thousands of new families into the programs.

“There’s no way politically we’re going to be able to push people out of the program in two years when the federal money runs out,” Gov. Sanford says.

The Medicaid money for states is also a fiscal time bomb, says the Journal:

  • The stimulus bill temporarily increases the share of state Medicaid bills reimbursed by the federal government by two or three percentage points.
  • High-income states now pay about half the Medicaid costs, and in low-income states the feds pay about 70 percent.
  • Much of the stimulus money will cover health-care costs for unemployed workers and single workers without kids.
  • But in 2011 almost all the $80 billion of extra federal Medicaid money vanishes.

Does Congress really expect states to dump one million people or more from Medicaid at that stage?  The alternative, warns the Journal, is that Congress will simply extend these transfer payments indefinitely.

Source: Editorial, “Governors v. Congress; The stimulus sets a long-term budget trap for the states,” Wall Street Journal, February 23, 2009.

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