Senate Stimulus Compromise Deals a Blow to Cash-Strapped States

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Washington has a way of blurring the human impact of a major policy debate — such as the one going on right now over the stimulus — by using vague and dense terminology to describe certain programs. Take, for instance, this talk of “state stabilization funds” that were cut back by $40 billion this weekend in the deal cut by Senate centrists.

The term sounds bone-dry, but the stabilization funds are a crucial bulwark against budget deficits that are already forcing layoffs, cutbacks, and higher taxes and fees in 39 states, 21 of which have at least one GOP senator. You heard right: Senate Republicans are insisting on cutting federal aid to their own states in the name of fiscal responsibility — while some of these state governments are actually pulling back on tax breaks in response.

“If you take a combination of the [budget] gaps for the rest of the current fiscal year, the gaps for the next fiscal year, and the gaps for 2011, [when] unemployment is still going to be high … we estimate that the [total state budget] gap is $350 billion to $370 billion,” Nick Johnson, director of the state fiscal project at the Center on Budget and Policy Priorities (CBPP), told me.

Compare that two-year deficit to the $79 billion in state stabilization funding that was included in both the House and Senate’s original stimulus bills; then consider that the Senate’s compromise left states with only $39 billion to close their budget gaps. Better yet, consider the plights of Maine and Arizona …Arizona, where Sen. John McCain (R) is touting his dogged opposition to the stimulus, is facing a $1.6 billion budget shortfall that could double in size by next year — a gap representing nearly one-third of the state’s general fund, according to the CBPP.

The state already has eliminated temporary health benefits for the disabled, hiked public university tuition by 9.5%, and instituted a hiring freeze. Meanwhile, McCain and Sen. Jon Kyl (R-AZ) are almost certain to vote against even the compromise cuts to state stabilization aid, with McCain thundering that the stimulus will “mortgage the future of our children [with] fiscally profligate spending.”

Let’s not even mention Nevada, where Sen. John Ensign (R) is opposing state stabilization aid despite a budget deficit that swallows 38% of the general fund. A provision in the stimulus says that states may lose out on money if they do not increase education spending to 2006 levels — a requirement that Nevada is finding difficult to meet. The state already has delayed a promised kindergarten expansion, cut money for gifted and disabled education, and sliced public university aid, according to the CBPP’s analysis.

Which brings us to Maine, the home of lead centrist negotiator Sen. Susan Collins (R). The state budget chief says Maine is hoping for as much as $1 billion in federal aid to help close a deficit that is already forcing layoffs and fee increases. So why did Collins work so hard to trim the estimated $250 million in state stabilization aid that would have gone to her own constituents? If she knows, she’s not telling.

And these Republicans are just the tip of the iceberg.

One suspects Georgia’s GOP senators, Saxby Chambliss and Johnny Isakson, won’t want to talk about the homeowners’ property tax benefit that’s being cut in order to close their state budget gap.

Also, Kansas GOPers Sam Brownback and Pat Roberts would be loath to admit that their opposition to the stimulus will help keep the estate tax alive in their state.

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