Budget and Spending

States have been getting more federal dollars over the past decade, especially since the Great Recession began and funds from the American Recovery and Reinvestment Act started flowing.
A new Council of State Governments report finds state spending from federal funding has increased from 26 percent in the 2008 fiscal year to 35 percent in 2010—a huge upswing in a short amount of time. The report, Federal Funding in the States, includes both national and regional analysis.
It’s going to be another challenging year for state policymakers—education reform, rising Medicaid costs, uncertainties caused by lack of federal authorization on transportation and education programs, coupled with the ever-present problems of gaping budget holes.

States have received a significant influx in federal dollars since the Great Recession began, primarily from the American Recovery and Reinvestment Act. As a result, state spending from federal funding also has increased significantly since the 2008 fiscal year, hitting 35 percent in fiscal year 2010. The amount of federal funding received per capita varies across states due to a number of factors. State spending from federal sources likely will decrease as Recovery Act dollars run out during the next few years, contributing to fiscal stress in statehouses across the country.

Now that the requiem has been written for the Super Committee the question is what does “sequestration” mean for state budgets.    The bottom line is that the collapse of Washington’s latest effort to set the federal budget on sound fiscal footing is a mixed bag for the states.   Medicaid represents the center of gravity of the state-federal fiscal relationship, and the Super Committee’s failure to reach a compromise has spared the program from near term cuts.  However, the nearly $190 billion in “discretionary” pass through grants received by state and local governments are squarely in the cross hairs of the sequestration process.

A move toward some type of defined-contribution system is likely to be considered by lawmakers in 2012. 

As members of the new Joint Select Committee on Deficit Reduction of the U.S. House and Senate meet to consider ways to slash the federal deficit, they’ll likely look to the work of the National Commission on Fiscal Responsibility and Reform, which last year recommended ways to cut federal spending.

Former U.S. Sen. Alan Simpson of Wyoming, who co-chaired that commission with former Sen. Erskine Bowles, told Capitol Ideas last winter that states should be prepared for major changes if the federal government is to get its fiscal house in order. Simpson will offer the fiscal keynote during The Council of State Governments National Conference and North American Summit.

States have received over $160 billion in budget relief since the beginning of the Great Recession both through the Recovery Act of 2009 and the Education Jobs and Medicaid Assistance Act of 2010.  The Obama administration is doubling down on this approach in its proposed American Jobs Act which includes $30 billion in direct state budget support and billions more in infrastructure and other program spending that would flow through the states over the next two years.  However, the deficit proposal revealed by the President today calls upon states to shoulder billions in long-term costs as part of a broader effort to set the nation on sounder fiscal footing. 

A Michigan law that reduced the pay of current state workers to offset the state’s retiree health care costs has been ruled unconstitutional.

Though Congress remains on August Recess, scheduled to return to Washington after Labor Day, the powerful new Joint Select Committee on Deficit Reduction—or “Super Committee”—has started to take both a physical and ideological shape.

In the mid-1990s, Canada was using $1 out of every $3 to service debt. The Wall Street Journalreferred to its Loonie—the $1 coin—as the Northern Peso. Linda Nazareth, an author and in-house economist for the Business News Network in Canada, said times have changed, in part because the Canadian public bought into the need to turn things around. “I don’t know if that has politically been done in U.S. yet,” Nazareth said during The Council of State Governments’ Eastern Regional Conference earlier this month.