States Get Lion’s Share of Stimulus Bill
January 26, 2009
The economic stimulus plan now moving through Congress would shower billions of federal dollars on state and local governments desperate for cash.
The House stimulus bill includes an extra $87 billion in federal aid to state Medicaid programs, for instance. It allots some $120 billion to boost state and city education programs.
There’s $4 billion for state and local anticrime initiatives in the legislation, not to mention $30-plus billion for highways and other infrastructure projects.
Overall, about one-quarter of the entire $825 billion recovery package would be devoted to activities crucial to governors, mayors, and local school boards – making them among the plan’s biggest beneficiaries.
Assuming that the aid is distributed by some population formula and not by need (doing it by need would give the most to the states who were most irresponsible with their budgets), states will soon face a decision of what to do with all this federal money (or, more accurately, state money that is freed up by the federal money).
It will be tempting to steer the money toward infrastructure projects, some of dubious value. It will also be tempting to use the money to ramp up spending to yet more unsustainable levels. That’s how states got into the mess in the first place, by ramping up spending in line with soaring revenues destined to plummet in the bust.
Since this is one-time money, states should think one-time uses. Rhode Island Gov. Don Carcieri (R) is thinking in this vein when he discusses the possibility of accelerating scheduled tax reductions.