Medicaid is the stuff of nightmares for state budgeters. With the Great Recession, Medicaid enrollment expanded as unemployment increased. Overall health care costs also continued to swell, although recent data indicate that the health spending growth rate may have slowed somewhat. The American Recovery and Reinvestment Act of 2009 provided an enhanced federal matching rate for state Medicaid programs in recognition of the counter-cyclical nature of the program—just when state revenues contract, the demand for more spending in Medicaid increases. The enhanced Medicaid matching rates ended during the 2011 fiscal year and states face difficult budget decisions that pit Medicaid against other state policy priorities.

With the flow of federal funding slowing dramatically, states will need to look to Washington for flexibility rather than dollars to meet their own budget challenges.

It could be argued that government is more transparent today than at any point in our country’s history. From the example set by the American Recovery and Reinvestment Act, state financial managers have worked to implement legislation envisioning ever greater access by citizens to government spending data. Transparency websites were first a trend for just a few states; they are now the norm. With each passing legislative session, the federal government hones its focus—and its mandates—on the concept of transparency. But how much is too much? At what point on the spectrum does the risk inherent in sharing so much financial data outweigh the potential benefits? These are not easy questions to answer. Regardless, it looks like transparency is here to stay.

In the early stages of the Recovery Act, one particular program—the $3.1 billion State Energy Program—had more than its share of controversy. South Carolina Gov. Mark Sanford made headlines by rejecting stimulus dollars tied to the program, classifying it as fiscally unsustainable.

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.

As states continue to feel the fiscal and economic effects of the Great Recession, the $66 billion in American Recovery and Reinvestment Act funding that remains unspent could go a long way in helping states get on the road to recovery.