Is Your State Asking for Government Aid?

December 6th, 2008 | by alexis |

It seems as though everyone is looking for a bailout, whether it’s financial institutions, insurance companies, or the auto industry. When the governor of your state is lobbying for money from congressional leaders and the Administration, well, that’s a different story. That’s because strengthening the economy during the current financial crisis starts at the state level.

Leaders of the National Governors Association (NGA) and the National Conference of State Legislatures (NCSL) met at Congress Hall in Philadelphia on December 2, 2008 to discuss how the federal government can bolster the economy by providing states with additional funding for Medicaid and infrastructure.

Pennsylvania Governor Ed Rendell, the head of NGA, made it clear that they were not there for handouts, but for billions of dollars that the states would distribute to ready-to-go recovery programs such as Countercylical programs.

Most states are required by their constitutions to balance their budgets. In order to comply, states would be forced to make budget cuts to programs, such as Medicaid and Special Education, if the government doesn’t step in.

Creation Through Infrastructure Investments

Investments in infrastructures such as highways, bridges, transit projects, airports, passenger rail, water-treatment systems, and affordable housing would put Americans to work.

According to Mark H. Ayers, President of the Building & Construction Trades Department, AFL-CIO, spending on the infrastructure would stimulate economic growth and job creation because “the economic activity and the jobs directly created by this spending have a beneficial ripple effect as contractors purchase materials and employees spend their salaries.” [1]

Targeted Benefits

These benefits will assist people with the strongest need through safety net programs such as unemployment insurance and Pell Grants.

This past June, Congress passed legislation that provided a 13-week extension to unemployment benefits in every state to workers who exhausted the regular 26-week benefits. Those extended benefits are quickly being depleted. With an economic downturn, a significant number of people return to school as a way to broaden their skills and increase earning potential.

These federal-state programs are one of the most effective mechanism the government has to mitigate the financial crisis – the programs are ongoing so that the allocation and administrative procedures are already in place for speedy distribution of funds to the neediest. States are asking for approximately $136 billion for infrastructure projects and a $40 billion injection into the Medicaid program for the poor and disabled. [2]

Mark Zandi, chief economist and co-founder of Moody’s Economy.com, wrote in a testimony submitted to the U.S. Budget Committee “The most efficacious spending includes extending unemployment benefits, expanding the food stamp program and increasing aid to hard-pressed state and local governments. Increasing infrastructure spending would also greatly boost the economy, particularly in the current downturn, as the economy’s problems are expected to last for an extended period. “[3]

The states’ fervent pleas for government aid underscored the crux of the problem – the states are tying to balance their budgets while responding to increased demand for state services and growing unemployment. If that wasn’t enough, another damaging effect of the slowing economy is the decline in state revenues. All of these factors add up to challenging times for the states that may span several years.

The reason for the long period of woes is that history has shown that the states’ fiscal problems inevitably straggle behind the country’s economic downturn. For example, Medicaid growth from women and children occurs late in the recession while any employment growth dawdles behind the recovery. Government funding would be a swift resolution to the states’ financial crisis.

During an economic downturn, the states’ typical response is to cut spending and raise taxes. This reaction only deepens and prolongs the downturn. That is why federal funding to the states is one of the most powerful actions the federal government can take.

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