State officials are urging the federal government to help them with a $140 billion budget shortfall expected before 2010.
Due to the declining economy, states face an increased call for Medicaid services but a declining tax base to pay for it. The governors are asking the Obama administration to boost state revenues for Medicaid through temporary enhancement of the Federal Medical Assistance Percentage (FMAP) for at least two years.
At a Monday press conference, leaders of the National Governors Association and the National Conference of State Legislatures said one of the most effective ways the federal government could speed states' financial recovery is to invest in existing federal-state programs, including Medicaid, unemployment benefits, food stamps and infrastructure projects that could create more jobs.
"These immediate solutions will drive economic recovery," said NGA Chairman and Pennsylvania Gov. Ed Rendell. "Investments in ready-to-go infrastructure projects are a cost-effective creator of high-paying jobs. These investments should include a broad array of infrastructure projects including airports, bridges, highways, transit systems, ports, rails, clean water, sewers and broadband. We should target high-priority projects so funds can be obligated and invested so that we will see the effects quickly."
According to the NGA, 20 states have already cut $7.6 billion from their fiscal year 2009 budgets and 30 states have identified additional shortfalls totaling more than $30 billion. Twenty-five states have identified shortfalls of $60 billion for FY 2010.
These numbers tell only a portion of the story, lawmakers said. State officials feel the greatest impact on their budgets in the year after a recession ends, primarily because Medicaid growth occurs late in the recession and employment growth lags after the recovery. The repercussions of this downturn will last for several years Ð and will be much worse without swift action, state leaders said.
Rendell said state lawmakers expect to present their case to President-elect Barack Obama on Tuesday.
According to NCSL President Joe Hackney, state officials face a challenge trying to balance budgets and fund essential services and programs at the same time. "The latest national developments and stock market declines make the state fiscal situation even more precarious," he said. "An economic recovery package will go a long way in providing immediate need for capital projects and spur much-needed job growth."
In testimony before the Senate Budget Committee on November 19, Mark Zandi, chief economist and co-founder of Moody's Economy.com, supported immediate federal aid to states, saying increases to infrastructure spending would "greatly boost" the economy.
More than 380 national and international economists recently wrote Congressional leaders recommending federal aid to states and local governments as one of the top targeted solutions for remedying the U.S. economic depression.