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Monday, February 23, 2009

Federal stimulus is a trap for states

The Wall Street Journal today looks at governors considering rejecting the federal stimulus dollars, as it will increase the cost to states.  For example, the stimulus expands Medicaid subsidies, encouraging states to expand their Medicaid rolls; but once the stimulus money vanishes in a few years, states will be on the hook.  Likewise with unemployment benefits; the stimulus increases the benefits, and extends benefits to part time workers - but leaves states on the hook for these added costs in the long run.

The Rockefeller Institute (which generally argues that states need more funding for all their wonderful programs, and glosses over wasteful uses of taxpayer dollars) also has a paper asking - "What Happens When New Federal Aid to States Runs Out?"  Their answer:

“The economic and revenue picture for states is uncertain,” the new report concludes. “Under any likely scenario, however, major fiscal problems for states will return when the new aid from Washington runs out. Budget gaps in fiscal 2012 will likely rival the critical shortfalls that states faced before enactment of the new stimulus package. Cuts or reductions in growth of spending on education, health care, and other programs, and/or major tax and other revenue increases, will almost certainly be on the table once again."
We have several solutions for Pennsylvania and states in a similar boat:

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