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Republicans Defend States' Rights - to Economic Misery

August 12, 2010

Back in February, 42 governors signed a letter pleading with Congressional leaders to extend the federal matching assistance program for Medicaid. And with good reason. 30 cash-strapped states, including Republican bastions Georgia and Alabama, had already assumed new federal Medicaid funds in their budgets. Worse still, drastic downturns in revenues combined with the recession's escalating demands for government services left the states facing an estimated $89 billion shortfall and up to 900,000 layoffs. And as Congress dawdled, 48,000 state and local government jobs disappeared in July alone.
But even as the mushrooming fiscal disaster in the states threatened to halt the national economic recovery in its tracks, Republicans with their eyes on the midterm elections said no to $33 billion to fund extended unemployment benefits and a $26 billion state aid package from Washington.
While House Minority Leader John Boehner led the Republican attack in labeling the Medicaid and jobs assistance a "bailout" for Democratic "special interests," President Obama said of the bill designed to help states save up to 300,000 jobs:

"We can't stand by and do nothing while pink slips are given to the men and women who educate our children and keep our communities safe."

But as part of their all-out war to deny Democrats any political victories in advance of the November elections, standing by and doing nothing while Americans in every state suffer is precisely the Republican strategy.
As it turns out, Republicans for months have been fiddling as the states burned.
In June, President Obama asked Congress to send him a $50 billion aid package for the states in order to avert "massive layoffs of teachers, police and firefighters." And rightly so. Despite the success of the American Recovery and Reinvestment Act, economists like Stephen Gordon warned "The increases at the federal level have not been enough to compensate for the spending cuts at the local and state levels." While the Congressional Budget Office (CBO) and former McCain economic adviser Mark Zandi among others touted federal aid to the states as the biggest bang for the stimulus buck, a recent report from the Rockefeller Institute painted a grim picture if Congress failed to act.

The revenue decline comes despite the tax increases imposed by many states since the recession began. With less tax money coming into state treasuries and expenses for programs like Medicaid continuing to mount, many states will probably be forced to consider further tax increases, spending cuts and layoffs -- actions that some economists warn could put a drag on the nation's fragile economic recovery.

And still Senate Republicans said no, choosing instead to filibuster an earlier, much larger $112 billion jobs bill that provided new grants and badly needed Medicaid funding to refill state coffers.
Now, the Washington Post reported, the chickens are coming home to roost. And, as the Post put it, "Nothing less than the nation's nascent economic recovery hangs in the balance."
The result of the financial Armageddon coming to state houses nationwide could "deliver a potentially crippling blow to the economy." After two consecutive years of revenue declines and a $74 billion drop-off (11%) in state spending since 2008, the stimulus funds which refilled state coffers will soon dry up. Nevertheless, 30 states included new federal money in their budgets, "assuming that Congress was sure to approve it given its past support and the fiscal chaos likely to ensue if the money is not forthcoming." But thanks to Republican delaying tactics, that fiscal chaos will be coming to a state near you.

States face a combined deficit of $89 billion in the fiscal year that begins Thursday, according to the National Conference of State Legislatures. And because every state but Vermont is required to balance its budget, the only recourse is cutting employees or vital programs, including education spending, medical services, programs for the disabled and elderly, and police and fire protection.

All that cutting could mean the loss of 900,000 jobs -- in the public sector and in private companies that rely on state business, according to the Center on Budget and Policy Priorities, a liberal research group.

Republican stonewalling isn't just wreaking havoc on blue states like California, New York, Michigan and Illinois. Arizona has been forced to sell buildings and other state assets. Alabama now faces a yawning budget chasm because "the $1.6 billion General Fund budget passed by the state Legislature anticipated receiving $197 million for Medicaid from the jobs bill." Georgia, too, faces a $375 million hole created by the missing federal money it had been banking on to balance its budget. As the AP reported:

Bert Brantley, a spokesman for Georgia Gov. Sonny Perdue, said it is unclear what will happen if Congress fails to deliver the dollars but that more cuts could be needed.

Multiplied by 50 states, 46 of which are looking at red ink and all but one of which are required to produce a balanced budget, what will happen is an economic calamity. As Raymond C. Scheppach, the executive director of the National Governors Association put it:

"More and more economists are talking about a double-dip recession. These cuts could be the straw that breaks the back."

That appears to be a gamble the GOP is willing to make. Many Republicans governors who voiced the needed for urgent action in February were predictably slient with the NGA met in July. (Indiana's Mitch Daniels, once of the signers of the February letter to Congress, today denounced the very Medicaid assistance he pleaded for just months before.)
Despite new survey research showing that over half of Americans "have suffered a spell of unemployment, a cut in pay, a reduction in hours or have become involuntary part-time workers," Republicans still tried to block the extension of unemployment and COBRA benefits for the jobless (and even aid to homeless veterans). And when it comes to the fiscal crisis in the states, the Pew Research Center received mixed messages from Americans in recent polling. While only 26% want the federal government to add to its deficits to help states, large majorities reject state cuts to education (73%), public safety (71%) and health care (65%) programs.
Reviewing the package of state aid signed this week by President Obama, the Economic Policy Institute praised Democrats for taking action:

Two years ago, state and local governments began shedding workers as they struggled to balance their budgets. What began as a trickle of job losses is becoming a flood...a total of more than 300,000 state and local government jobs have been lost since August 2008...
Legislation passed the Senate last week to slow this tide of unemployment -- $16.1 billion of funding for state Medicaid programs and $10 billion to save education jobs. We estimate that the Medicaid funds will save 158,000 jobs, including police officers, firefighters, and health care workers. But more than half the jobs saved will be in the private sector, including workers who contract for or supply services to state and local governments. The Department of Education estimates that the education funds will save another 161,000 jobs in public schools. These jobs and the funding to save them are desperately needed.

Sadly, that math of Americans' desperation doesn't count in Republican political calculus.
But when the budget ax falls in states across the country, Americans will know who was on their side - and who was to blame.


Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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