States Of Decline

Via CalcRisk, the Washington Post reports that FY 2010 state budgets are hideous across the board but the stimulus package has saved them from many worse cuts. However, FY 2011 will be almost universally worse.

This year, the federal stimulus package signed into law by President Obama in February served as a lifeline. For all the intense partisan debate in Washington over whether the stimulus so far has worked, in the states there is little question that federal cash has staved off catastrophe.

According to the General Accounting Office's July report, by June 19 the federal government had disbursed $29 billion to the states, with 90 percent of that money going to Medicaid, to help states maintain coverage levels, or to help them stabilize budgets and avoid layoffs.

"The stimulus has had a tremendous effect in forestalling some of the worst cuts," said Elizabeth McNichol, a senior fellow with the Center on Budget and Policy Priorities. It's absolutely worked for the states."

Whatley, of the Council of State Governments, said state deficits would be 40 percent worse if not for the stimulus funds. The federal funds have given states "breathing room," he said, but he added that "the stimulus cushioned the blow of the state fiscal crisis, but it didn't blunt it."

The stimulus money "is helping California weather the worst fiscal crisis in recent memory," said H.D. Palmer, spokesman for the California Department of Finance. But Palmer said the crisis is far from over: "We hope that the worst of this recession is behind us, but whoever is the next governor will face continuing fiscal challenges."

You notice the attacks on the "failed stimulus package" have stopped (or if they have not, they have been drowned out by the Town Hall Blitzers along with everything else.) States have been saved by stimulus outlays, and the numbers bear that out. If anything, I'm in the Krugman camp on this: the initial stimulus was too small.

However next year will present a much larger problem: states are still going to be suffering shrinking tax revenues from falling real estate prices (both residential and commercial now) and that stimulus money will not be there next year. More cuts, layoffs, furloughs, and rollbacks are on the way. More programs will be on the chopping block next year. It's bad now, but it will get worse as an even larger budget shortfall is predicted for next July.

Are Obama and the Democrats prepared to try to push another stimulus package next year? Will that even be an option?