Professional Soldiers ® - The Stimulus has Strings!

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IBD Editorials

Perspective
Stimulus Strings Will Limit State Options

By AMBER GUNNPosted 06:49 PM ET

State lawmakers who accepted federal stimulus dollars this year may have traded their birthright for a pot of stew.

Take the state of Washington. Legislators here faced an appalling $9 billion budget shortfall in 2009, which they "solved" using just about every budget gimmick in the book. They raided various dedicated accounts, drained the state's rainy day fund and raised every fee in sight to avoid Washington's two-thirds legislative requirement for tax increases.

And they accepted more than $4 billion in one-time federal stimulus dollars.

Legislators were either oblivious to or unconcerned about the attached strings. Why else would they agree to severe restrictions from the federal government in the amounts and types of budget cuts and policy decisions they can make in their own states?

Like Washington, most states will enter 2010 with worse deficit problems.

When Washington legislators began looking for ways to close their next billion-dollar deficit, legislative staff informed them that their options were limited. The "maintenance of effort" provisions in the Recovery Act mean that Washington state cannot adopt eligibility standards for Medicaid that are more restrictive than those in effect on July 1, 2008.

Most states were still basking in the economic growth of 2007 at that point, and were at their most generous level of eligibility standards. Almost every state is in this same sinking boat.

Restrictions on K-12 education budget reductions are also extremely severe. Because state lawmakers accepted $820 million in education stimulus dollars, only 9% of the state's $6.8 billion K-12 budget is eligible for reductions in fiscal year 2011. The same restrictions apply to the current fiscal year.

The same is true of higher education, where cuts are limited to 25%, and low-income health care to 12%.

These restrictions were in place at the time states such as Washington took the money, but most legislative leaders refused to quantify them or discuss their long-term implications for state budgets.

Snake-oil stimulus dollars were hawked to states as budget miracle cures. Desperate, shortsighted legislators bought the deal and are about to discover the little-known side effects.

While the stimulus money temporarily provided enough relief to forgo significant tax increases or cuts in some state budgets, it worsened the effects by pushing budget D-Day forward yet another year.

Washington Gov. Christine Gregoire has publicly disclosed that she loses sleep when thinking about how to balance Washington's next budget without the aid of federal stimulus dollars. She is already calling for a second stimulus package, though less than half of Washington's stimulus dollars have been used. Are they reserving these for election-year rescue efforts?

Some states were wise enough to evaluate stimulus strings even if they weren't wise enough to reject them. Others, giddy that their progressive dream to centralize power in Washington, D.C., was closer to reality, happily took the money and the strings.

But states such as Washington blindly and eagerly sought a free lunch from Uncle Sam. They are in for a rude shock when they get down to writing their budgets.

• Gunn is director of the Economic Policy Center for the Evergreen Freedom Foundation, a nonprofit, public-policy think tank in Olympia, Wash.

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