Economic Recovery Plan will Cover Less Than Half of Projected State Deficits

While groups like the American Legislative Exchange Council (ALEC) have condemned federal help for state governments in the recovery package, most analysts recognize that state spending is going to be the most immediate stimulus available for reviving the national economy.

Unfortunately, as a new study by the Center on Budget and Policy Priorities details, while state deficits are projected to be $350 billion over the next 30 months, the House recovery plan just approved includes only about $150 to $155 billion that can be used to address those shortfalls, meaning that 55% to 60% of projected state deficits will remain.  The key parts of the just-passed bill that do address those operating shortfalls include:

  • $88 billion in Medicaid funding
  • $65 billion or more of a new “Fiscal Stabilization Fund" specifically targeted for state and local governments
  • A few billion from other funding streams, such as education and public safety, much of which will go to local governments

This federal support is obviously welcome and it will help many states avoid more drastic cuts and address remaining shortfalls with some combination of the use of rainy day funds, revenue increases, closing tax loopholes, and more modest cuts in some programs than were projected.  On the other hand, any pressure on states to cut spending defeats the purpose of stimulating the economy, since state spending is some of the most immediate money to enter the economy or leave it if states are forced to suspend programs. So state leaders are more than justified in pushing for more aggressive aid to the states, either in the final recovery bill or in other federal spending initiatives.

The Center for American Progress has prepared an interactive map showing state-by-state allocations where money from the House bill is going, including both the direct aid to current operating budgets and funds for additional infrastructure and other projects.