September 26, 2008

HOUSE STIMULUS PLAN EFFECTIVELY
TARGETS FISCAL RELIEF TO STATES

By Iris J. Lav, Jason Levitis, Edwin Park

The House Leadership’s new stimulus proposal includes more than $14 billion in fiscal relief for states.  This is designed to help states avert budget cuts and tax increases that they otherwise will have to institute to balance their budgets but that will make the economic downturn worse by withdrawing demand from the economy.     

States must balance their operating budgets each year, even in recessions.  State revenues are stagnating or declining in the current weak economic climate.  Yet the need for various services is increasing as people lose their jobs.  The result is that states are being forced to balance their budgets by cutting programs and services and raising taxes, actions that reduce demand in the economy as states purchase fewer goods and services, increase people’s tax burdens, and/or lay off workers.  A recent Goldman Sachs report noted that Goldman Sachs analysts see a significant risk of a longer recession caused by a number of factors including “a drag from weaker state and local spending.”[1]

Fiscal woes are not, however, uniform across states.  Some states face severe budget crises and the need to impose very large spending cuts or tax increases.  Others face less severe, but still significant budget problems.  A third group of states — particularly those with mineral wealth — are faring better. 

In recognition of this reality, the House stimulus plan targets most of its fiscal relief to the states with the weakest economies.  It divides states into three levels of assistance, based on three measures of state economic conditions.  Under the plan, states facing the most serious economic hardship by these measures will receive the highest level of aid, states showing intermediate economic hardship will receive an intermediate level of aid, and states showing little economic hardship on these measures (but still potentially facing some fiscal stress) will receive the lowest level of aid.  All states receive some assistance, since even states flush with oil revenue today are likely to face some problems now or in the near future in other sectors of their economies or in some parts of their states. 

The three economic indicators that the House plan uses to target fiscal relief are:  1) changes in the level of employment in a state, which affect income and sales tax revenues; 2) increases in housing foreclosures, which affect sales and property tax revenues; and 3) increases in the number of residents in poverty, as measured by increases in food stamp participation.  For each of these indicators, the legislation compares the most recent data available to data from two years earlier, before the downturn began.

Targeting fiscal relief to states on the basis of these factors effectively focuses federal dollars where they are needed most.  Demonstration by a state of economic distress in all three of these indicators is highly correlated with state fiscal hardship.  Of the 25 states that fall into the highest level of assistance under the House plan, all but one faced deficits for fiscal year 2009, now project deficits for 2010, or both.[2]  The fiscal year 2009 deficits that these states had to close averaged approximately 11 percent of their general fund budgets.  The majority of states in the second level of assistance also face deficits. 

The House proposal provides fiscal relief through a temporary increase in the federal share of Medicaid program costs.  This is a sound strategy, and is similar to the state fiscal relief that Congress provided in 2003.  When people lose jobs and income, more of them become eligible for public health insurance programs such as Medicaid and the State Children’s Health Insurance Program (SCHIP).[3]   But states suffering from stagnant or declining revenues cannot accommodate this need and typically take actions to limit or reduce enrollment or to limit the extent to which health services can be accessed through these programs.  In the economic downturn that occurred in the early part of this decade, 34 states cut their health care programs, and 1 million low-income people lost eligibility for Medicaid and SCHIP.  Yet once Congress enacted a temporary increase in the federal Medicaid matching rate, most states were able to avert further health care cuts (including no additional state reductions in eligibility), and in some cases, were able to reverse some previously enacted cuts.[4]   In the current downturn, 13 states already have cut health care programs, and deepening state fiscal problems strongly suggest more cuts in health care and other programs (especially education) are in the offing if federal assistance is not forthcoming.

 

State Fiscal Distress

States are experiencing major budget problems.  As states worked to enact budgets for fiscal year 2009 — which began on July 1, 2008 in most states — 29 states had to close deficits totaling about $48 billion, or 9 percent of these states’ general fund budgets.  States took a variety of actions to close these deficits, including cutting programs and services, raising taxes, and drawing down reserves.  Nevertheless, by early September 2008, new, mid-year deficits for 2009 had emerged in 15 states, on top of the deficits states closed when they enacted their 2009 budgets.  In addition, at least 13 states already are projecting deficits for fiscal year 2010, a number likely to climb much higher over the next six months.[5] 

The budget cuts and tax increases states are instituting to close deficits can lengthen and deepen the economic downturn and impede recovery.[6]  Federal assistance can lessen states’ need to take these harmful, pro-cyclical actions.

 

How the Levels of Assistance Would Work

No one economic measure can capture the fiscal pressures that states face.  While lagging revenues always play a major role in the state fiscal problems that occur during economic downturns, states vary in their reliance on income and consumption taxes, in their division of responsibility and financing between state and local governments, and in their local (and in some cases, state) reliance on property taxes.  In addition, budgetary pressure is generated by increases in the number of poor and near-poor families that become eligible in economic downturns for programs such as Medicaid and SCHIP.  The House stimulus plan balances these factors in allocating fiscal relief.

The plan relies on three indicators of state economic conditions:  employment, poverty (as represented by food stamp participation), and foreclosure rates.  Each is an important predictor of state fiscal circumstances.  Changes in employment are closely related to changes in state income and sales tax collections.  The change in the number of food stamp recipients is the single best early warning measure of what is happening to poverty in a state, which in turn is correlated with spending on Medicaid, SCHIP, and other programs that serve the poor and near-poor.  Change in the foreclosure rate is related to sales tax revenues:  people who feel they are losing home equity value are likely to reduce their consumption, and foreclosures also lead to a reduction in the purchase of building materials and home furnishings.  An increase in foreclosures also affects property tax revenues, since property taxes are not paid on many foreclosed properties.[7]  For each of the three indicators, the House plan would compare the most recent three months of available data to data from two years earlier, before the downturn began.  (See Appendix for the data this report uses in its analysis.[8])  

States would be assigned to a level of assistance based on the number of indicators on which they show economic distress.  The specific indicators are defined as:  employment growth of less than 2 percent; foreclosure rate growth of more than 60 percent; and food stamp caseload growth of more than 4 percent.  States meeting all three criteria are assigned to the highest level of assistance, which we refer to here as “Tier A.”  States that meet two of the three criteria are designated as being in “Tier B.”  States meeting one or none of the criteria are placed in “Tier C.” 

The formula also recognizes that a state can be in severe economic stress if, for example, it has a massive increase in foreclosures, even if its food stamp rolls have not yet increased.  Thus, states with extremely slow employment growth — defined as either an employment decline or employment growth of less than 0.25 percent — or a particularly high increase in their foreclosure rate (defined as an increase of more than 200 percent) receive an “extra point.”  The extra point could move them from Tier C to Tier B or from Tier B to Tier A.[9]

 

The Tiers Target Federal Aid to the States That Need It Most

This method of targeting based on economic data closely reflects fiscal distress in the states.  According to the most recent data now available:

  • Some 25 states fall into Tier A:  Arizona, California, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Hampshire, New Jersey, New York, Ohio, Oregon, Rhode Island, Tennessee, Vermont, Virginia, and Wisconsin.
  • Of these 25 states, 24 had to close budget deficits for fiscal year 2009, already project deficits for fiscal year 2010,[10] or both.[11]  The 2009 deficits in these states equal approximately 11 percent of annual general fund expenditures, a huge hole in these states’ budgets.[12]  At least 14 of these states, after having cut spending, increased taxes, or dipped into rainy day funds to balance their budgets for 2009, are now predicting additional fiscal year 2009 shortfalls that will require them to take further contractionary steps — and thereby heighten the drag on the economy.[13]  (The number of states in this situation is expected to rise in the months ahead.)
  • Eleven states fall into tier B:  Alabama, Alaska, District of Columbia, Idaho, Indiana, Iowa, Kentucky, Mississippi, Pennsylvania, Washington, and West Virginia.  Five of these states — Alabama, the District of Columbia, Iowa, Kentucky, and Mississippi — had deficits in fiscal 2009; Washington projects a deficit for 2010.  Idaho and Pennsylvania have weakening fiscal conditions and could face deficits soon.

A few states that expect to face deficits are not among those showing the greatest economic distress under the three indicators.  Three of the 16 states in Tier C — Arkansas, Oklahoma, and South Carolina — had to close fiscal year 2009 deficits, and one other state, Kansas, is projecting a deficit for fiscal year 2010.  Deficits in these states may stem from policy choices rather than economic stress or may be caused by economic factors not captured by these three indicators.  

Senate Leadership’s Stimulus Proposal Also Includes State Fiscal Relief

The Senate Leadership has also unveiled a new stimulus proposal that includes fiscal relief for the states.  The Senate proposal provides a total of nearly $20 billion in state fiscal relief, a larger amount than under the House proposal.  Unlike the House proposal, however, the proposal provides the same level of assistance to all states.

The Senate stimulus proposal would provide a temporary increase of 4 percentage points in all states’ FMAP for a period of 15 months starting October 1, 2008.   Similar to the requirement under the House proposal, in order for states to qualify for the increase in their FMAP, they must not have Medicaid eligibility levels that were more restrictive than the levels that were in effect on September 1, 2008.  States would also be “held harmless” for any decreases that might have occurred because of the annual recalculation of the FMAP.  Each state's 2009 FMAP would be set at least as high as its 2008 FMAP, and each state’s 2010 FMAP would be set at least as high as its 2009 FMAP for the first quarter of fiscal year 2010.

The Fiscal Relief the Proposal Would Provide

The legislation provides more than $14 billion in fiscal relief to states, in the form of a temporary increase in the federal share of Medicaid costs (known technically as an increase in the FMAP, or federal Medicaid matching percentage) for 14 months starting on October 1, 2008 (the start of federal fiscal year 2009).[14]  For states in Tier A, their FMAP would increase by 4 percentage points.  For example, if the federal government is paying for 50 percent of a state’s Medicaid costs, it would pay 54 percent of these costs during the period that the stimulus plan would cover.  For states in Tier B, the FMAP would rise by 2 percentage points.  States in Tier C would get a 1 percentage point increase.[15]  (To receive any increased FMAP, a state must not have Medicaid eligibility levels that are more restrictive than were in effect on July 1, 2008.[16]  States that have already restricted eligibility since July 1 would be allowed to reverse their actions and still qualify for an increased FMAP in the first calendar quarter they have restored their Medicaid eligibility.) 

While the data used to target the fiscal relief reflect state circumstances for a specific period of time, the House plan also contemplates looking at the data for each calendar quarter that the enhanced FMAP is in effect.  If a state reaches the thresholds for a higher tier, it will move into that tier and receive the relief at the higher level for the remainder of 14 months.[17]

Table 1 shows estimates of the legislation’s aid to each state based on current data.  According to these illustrative estimates, the 25 Tier A states would receive 81.5 percent of the benefit, the 11 Tier B states would receive 9.6 percent of the benefit, and the 15 Tier C states would receive 8.9 percent of the benefit.[18]

 
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TABLE 1:
STATE AID THROUGH FMAP INCREASE UNDER HOUSE PLAN — ILLUSTRATIVE ESTIMATES

 

 

Points Awarded Due to Change in:

 

 

 

 

STATE

State Budget Condition

Total Employment

Foreclosure Inventory

Food Stamp Caseload

Total Points

Qualifying Tier

FMAP Increase

Increase in Federal Aid

($ millions)

Alabama

D

1

0

1

2

B

2%

$97

Alaska

 

1

1

0

2

B

2%

$52

Arizona

D

2

2

1

5

A

4%

$451

Arkansas

D

1

0

0

1

C

1%

$54

California

D

1

2

1

4

A

4%

$1,950

Colorado

 

0

1

0

1

C

1%

$39

Connecticut

D

1

2

1

4

A

4%

$226

Delaware

D

1

1

1

3

A

4%

$60

District of Columbia

D

0

2

0

2

B

2%

$39

Florida

D

2

2

1

5

A

4%

$991

Georgia

D

1

1

1

3

A

4%

$330

Hawaii

D

1

2

1

4

A

4%

$75

Idaho

 

0

1

1

2

B

2%

$33

Illinois

D

1

1

1

3

A

4%

$606

Indiana

 

1

0

1

2

B

2%

$146

Iowa

D

1

0

1

2

B

2%

$70

Kansas

d

0

0

1

1

C

1%

$30

Kentucky

D

1

0

1

2

B

2%

$121

Louisiana

 

0

0

0

0

C

1%

$170

Maine

D

1

1

1

3

A

4%

$106

Maryland

D

1

2

1

4

A

4%

$294

Massachusetts

D

1

2

1

4

A

4%

$593

Michigan

D

2

1

1

4

A

4%

$435

Minnesota

D

1

1

1

3

A

4%

$363

Mississippi

D

1

0

1

2

B

2%

$114

Missouri

 

1

1

1

3

A

4%

$376

Montana

 

0

1

0

1

C

1%

$13

Nebraska

 

0

0

0

0

C

1%

$21

Nevada

D

2

2

1

5

A

4%

$101

New Hampshire

D

0

2

1

3

A

4%

$58

New Jersey

D

2

2

1

5

A

4%

$393

New Mexico

 

0

0

0

0

C

1%

$52

New York

D

1

1

1

3

A

4%

$2,440

North Carolina

 

0

0

1

1

C

1%

$131

North Dakota

 

0

0

1

1

C

1%

$11

Ohio

D

2

0

1

3

A

4%

$659

Oklahoma

D

0

0

0

0

C

1%

$98

Oregon

d

1

1

1

3

A

4%

$173

Pennsylvania

 

1

0

1

2

B

2%

$426

Rhode Island

D

2

2

1

5

A

4%

$90

South Carolina

D

0

0

1

1

C

1%

$47

South Dakota

 

0

0

1

1

C

1%

$8

Tennessee

D

2

0

1

3

A

4%

$379

Texas

 

0

0

0

0

C

1%

$570

Utah

 

0

1

0

1

C

1%

$33

Vermont

D

2

1

1

4

A

4%

$55

Virginia

D

1

2

1

4

A

4%

$279

Washington

d

0

1

1

2

B

2%

$180

West Virginia

 

1

0

1

2

B

2%

$73

Wisconsin

D

2

1

1

4

A

4%

$264

Wyoming

 

0

0

0

0

C

1%

$6

Total

 

43

43

39

 

 

 

$14,410

D = has projected a deficit for FY 2009; d = has projected a deficit for FY 2010

Note: These estimates may differ from the levels of aid under the House legislation.  There are at least two reasons for this.  First, the foreclosure figures may be taken from a different source.  Second, the legislation specifies use of the most recent data, so newer data may be used.

Sources: For state budget conditions, see Elizabeth McNichol and Iris J. Lav, “State Budget Troubles Worsen,” CBPP, Sept. 8, 2008.

The state aid figures are CBPP calculations based on states' projections of Medicaid spending in fiscal year 2009 and fiscal year 2010, adjusted to reflect the Congressional Budget Office's (CBO) estimate of the aggregate cost of the House bill's FMAP increase.  The table excludes a small amount (about $29 million) that is estimated to go to U.S. territories.  The total CBO estimate for the FMAP increase provision is $14.41 billion.

Sources for the employment, foreclosure, and food stamp data may be found in the Appendix.

 

Appendix: Estimated Points Awarded Based on Economic Indicators

ESTIMATED POINTS AWARDED BASED ON STATE TRENDS IN TOTAL EMPLOYMENT,
2006-2008

     

Total Employment

   
Rank STATE

State Budget Condition

May - July 2006 Average (in thousands)

May - July 2008 Average (in thousands)

Percent Change

Points

1

Michigan

D

4,344

4,226

-2.71%

2

2

Rhode Island

D

496

485

-2.32%

2

3

Florida

D

7,955

7,896

-0.74%

2

4

Ohio

D

5,467

5,441

-0.47%

2

5

New Jersey

D

4,109

4,104

-0.12%

2

6

Arizona

D

2,615

2,614

-0.05%

2

7

Tennessee

D

2,784

2,787

0.11%

2

8

Nevada

D

1,286

1,287

0.11%

2

9

Vermont

D

306

307

0.18%

2

10

Wisconsin

D

2,894

2,900

0.20%

2

….Bonus Point Threshold   .….

 

 

 

0.25%

 

11

Indiana

 

2,970

2,978

0.26%

1

12

Delaware

D

440

441

0.28%

1

13

Maine

D

624

626

0.30%

1

14

California

D

15,084

15,151

0.44%

1

15

West Virginia

 

758

763

0.63%

1

16

Missouri

 

2,785

2,803

0.65%

1

17

Arkansas

D

1,199

1,207

0.69%

1

18

Minnesota

D

2,784

2,804

0.73%

1

19

Illinois

D

5,975

6,028

0.89%

1

20

Pennsylvania

 

5,776

5,828

0.91%

1

21

Alaska

 

332

335

1.03%

1

22

Mississippi

D

1,138

1,151

1.16%

1

23

Virginia

D

3,749

3,795

1.24%

1

24

Iowa

D

1,513

1,533

1.33%

1

25

Hawaii

D

617

625

1.35%

1

26

Connecticut

D

1,686

1,711

1.46%

1

27

Massachusetts

D

3,267

3,316

1.50%

1

28

Georgia

D

4,082

4,147

1.58%

1

29

Alabama

D

1,984

2,016

1.65%

1

30

Oregon

d

1,710

1,739

1.67%

1

31

Maryland

D

2,607

2,654

1.82%

1

32

Kentucky

D

1,850

1,884

1.84%

1

33

New York

D

8,654

8,820

1.92%

1

….… Indicator Threshold  .….

 

 

 

2.00%

 

34

New Mexico

 

834

852

2.25%

0

35

New Hampshire

D

647

662

2.30%

0

36

Idaho

 

645

660

2.33%

0

37

Kansas

d

1,354

1,388

2.52%

0

38

District of Columbia

D

690

708

2.65%

0

39

North Dakota

 

353

363

2.73%

0

40

Oklahoma

D

1,539

1,582

2.79%

0

41

Nebraska

 

952

979

2.79%

0

42

Montana

 

444

457

2.87%

0

43

South Carolina

D

1,902

1,963

3.22%

0

44

South Dakota

 

405

419

3.32%

0

45

North Carolina

 

4,031

4,175

3.58%

0

46

Washington

d

2,873

2,979

3.69%

0

47

Colorado

 

2,289

2,374

3.71%

0

48

Utah

 

1,201

1,263

5.16%

0

49

Louisiana

 

1,850

1,945

5.16%

0

50

Texas

 

10,049

10,606

5.54%

0

51

Wyoming

 

284

302

6.41%

0

 

Total

 

136,180

138,078

1.39%

   43

D = has projected a deficit for FY 2009; d = has projected a deficit for FY 2010     

Note:  Points awarded under the House legislation may be different due to more recent data becoming available.

Source: BLS Current Employer Statistics Survey (Establishment Survey), available at

http://www.bls.gov/data/home.htm.  July 2008 data are preliminary.

 

ESTIMATED POINTS AWARDED BASED ON STATE TRENDS IN FORECLOSURE INVENTORIES, 2006-2008

Rank

STATE

 

Percent Change in Foreclosure Inventory,
2006 - 2008

Points

1

California

D

1330%

2

2

Arizona

D

1317%

2

3

Florida

D

1100%

2

4

Nevada

D

993%

2

5

Hawaii

D

545%

2

6

Virginia

D

484%

2

7

District of Columbia

D

363%

2

8

Rhode Island

D

335%

2

9

Maryland

D

310%

2

10

New Jersey

D

233%

2

11

New Hampshire

D

230%

2

12

Massachusetts

D

229%

2

13

Connecticut

D

205%

2

….….  Bonus Point Threshold   ….….

 

200%

 

15

Minnesota

D

199%

1

16

Oregon

d

197%

1

17

Idaho

 

196%

1

18

Maine

D

167%

1

19

Washington

d

160%

1

20

New York

D

159%

1

21

Illinois

D

144%

1

22

Vermont

D

137%

1

23

Delaware

D

133%

1

24

Alaska

 

121%

1

25

Wisconsin

D

120%

1

26

Montana

 

107%

1

27

Michigan

D

91%

1

28

Colorado

 

84%

1

29

Georgia

D

82%

1

30

Utah

 

66%

1

31

Missouri

 

62%

1

….….   Indicator Threshold   ….….

 

60%

 

32

North Dakota

 

60%

0

34

Nebraska

 

52%

0

35

Wyoming

 

51%

0

36

West Virginia

 

51%

0

37

Alabama

D

50%

0

37

New Mexico

 

50%

0

39

Iowa

D

47%

0

40

South Dakota

 

46%

0

41

Kentucky

D

42%

0

42

Louisiana

 

38%

0

43

Indiana

 

29%

0

44

Oklahoma

D

29%

0

45

Pennsylvania

 

29%

0

46

Texas

 

27%

0

47

Ohio

D

27%

0

48

Arkansas

D

26%

0

49

Tennessee

D

26%

0

50

South Carolina

D

25%

0

51

Kansas

d

22%

0

52

North Carolina

 

18%

0

53

Mississippi

D

14%

0

D = has projected a deficit for FY 2009; d = has projected a deficit for FY 2010

Note:  Points awarded under the House legislation may be different due to using a different data source and/or more recent data becoming available.

Source:  Mortgage Bankers National Delinquency Survey, Reprinted by permission of the Mortgage Bankers Association.  For more information, contact the Mortgage Bankers Association, 1919 Pennsylvania Avenue, N.W., Washington, D.C. 20006, (202) 557-2700, www.mortgagebankers.org.

 

ESTIMATED POINTS AWARDED BASED ON STATE TRENDS IN FOOD STAMP
CASELOAD, 2006-2008

     

Food Stamp Caseload

   
Rank STATE

 

Apr. - June 2006 Average (in thousands)

Apr. - June 2008 Average (in thousands)

Percent Change

Points

1

Nevada D

117

148

26.41%

1

2

Florida D

1,219

1,474

20.90%

1

3

Maryland D

304

363

19.53%

1

4

Arizona D

533

637

19.48%

1

5

Vermont D

47

56

19.30%

1

6

Rhode Island D

73

87

18.58%

1

7

Massachusetts D

432

508

17.49%

1

8

Wisconsin D

371

435

17.35%

1

9

Delaware D

66

76

15.12%

1

10

North Dakota  

43

49

14.24%

1

11

New Hampshire D

57

65

13.84%

1

12

Hawaii D

86

97

12.95%

1

13

Missouri  

792

894

12.91%

1

14

California D

1,998

2,250

12.63%

1

15

Mississippi D

397

445

12.32%

1

16

Iowa D

228

256

12.20%

1

17

Idaho  

92

103

12.01%

1

18

South Carolina D

529

592

11.84%

1

19

Michigan D

1,141

1,275

11.75%

1

20

Minnesota D

266

297

11.72%

1

21

North Carolina  

849

947

11.53%

1

22

Georgia D

925

1,029

11.20%

1

23

Maine D

159

176

10.71%

1

24

Oregon d

435

479

10.18%

1

25

Pennsylvania  

1,093

1,196

9.47%

1

26

New York D

1,792

1,962

9.46%

1

27

Ohio D

1,064

1,161

9.13%

1

28

New Jersey D

405

440

8.66%

1

29

South Dakota  

59

64

8.54%

1

30

Virginia D

505

547

8.41%

1

31

Kentucky D

586

635

8.33%

1

32

Indiana  

575

622

8.13%

1

33

Alabama D

534

573

7.19%

1

34

Connecticut D

211

226

7.01%

1

35

Washington d

540

578

6.94%

1

36

Illinois D

1,224

1,305

6.57%

1

37

Tennessee D

864

914

5.76%

1

38

West Virginia  

266

278

4.54%

1

39

Kansas d

181

189

4.25%

1

….….   Indicator Threshold   ….….

     

4.00%

 

40

Utah  

132

136

3.20%

0

41

District of Columbia D

87

89

2.91%

0

42

Louisiana  

646

655

1.44%

0

43

Alaska  

61

61

1.31%

0

44

Nebraska  

120

121

0.94%

0

45

Arkansas D

380

379

-0.15%

0

46

Texas  

2,475

2,453

-0.89%

0

47

Montana  

82

81

-0.90%

0

48

Colorado  

257

254

-1.04%

0

49

New Mexico  

245

242

-1.28%

0

50

Oklahoma D

431

415

-3.56%

0

51

Wyoming  

24

23

-5.19%

0

  Total  

25,996

28,337

9.00%

39

D = has projected a deficit for FY 2009; d = has projected a deficit for FY 2010

Note:  Points awarded under the House legislation may be different due to more recent data becoming available.

Source:  USDA Food and Nutrition Service Data, available at http://www.fns.usda.gov/pd/29fslatest.htm.

(Previous months' data on file.)

 


End Notes:

[1] Goldman Sachs US Economic Research, “Financial Conditions: Tighter than They Appear,” US Economics Analyst, August 29, 2008.

[2] The levels of assistance assigned to each state in this report may differ slightly from those that will be effective under the House legislation.  There are two reasons for this.  First, the foreclosure figures may be taken from a different source than is used in this report.  Second, this report is based on the most recent data available now.  The legislation specifies use of the most recent data available, so it is possible that updated data will change the level of assistance for a few states.

[3] See, for example, Stan Dorn, Bowen Garrett, John Holahan, and Aimee Williams, “Medicaid, SCHIP and Economic Downturn: Policy Challenges and Policy Responses,” Kaiser Commission on Medicaid and the Uninsured, April 2008.

[4] Victoria Wachino, Robin Rudowitz, and Molly O’Malley, “Financing Health Coverage: The Fiscal Relief Experience,” Kaiser Commission on Medicaid and the Uninsured, November 2005.

[5] See Elizabeth C. McNichol and Iris Lav, “29 States Faced Total Budget Shortfall of at Least $48 Billion in 2009,” CBPP, Updated Aug. 5, 2008, and Elizabeth McNichol and Iris J. Lav, “State Budget Troubles Worsen,” CBPP, Updated Sept. 26, 2008.

[6] See Nicholas Johnson, Elizabeth Hudgins, and Jeremy Koulish, “Facing Deficits, Many States Are Imposing Cuts That Hurt Vulnerable Residents,” CBPP, Updated Sept. 26, 2008.

[7] For more information on the three measures and why they represent a sound way to target fiscal relief, see Iris J. Lav, Jason Levitis, and Elizabeth McNichol, “Economic Data Can Be Used to Target State Fiscal Relief Effectively,” CBPP, Updated July 9, 2008.

[8] For employment, this report compares total employment during the three months ending in July 2008 with total employment in the same three months of 2006.  For foreclosures, it compares the foreclosure rate on June 30, 2008 with the rate on June 30, 2006.  For poverty, it compares food stamp participation in the three months ending June 2008 with participation in the same three months in 2006.  As noted in footnote 2 above, if the legislation is enacted, the data used to actually calculate the assistance may be more recent, and the foreclosure data may be slightly different depending on what source is used.

[9] These thresholds were chosen to reflect the level of economic conditions that appear to be causing deficits in the states.  There are 33 states with employment growth of less than 2 percent (and 10 states with employment declines or employment growth of less than 0.25 percent).   There are 30 states with a foreclosure rate increase greater than 60 percent (and 13 states with a foreclosure rate increase exceeding 200 percent).   There are 39 states with food stamp caseload increases of more than 4 percent.

[10] Unlike the federal government, states cannot run deficits in their operating budgets when the economy turns down; they must cut expenditures, raise taxes, or draw down reserve funds to balance their budgets.  Thus, our count of states that projected deficits for FY 2009 includes those that have already taken such actions to close their deficits, as well as states that have yet to finalize their FY 2009 budgets.

[11] Missouri is the only one of these states that has not reported or projected a deficit.

[12] The 11 percent includes the initial FY 2009 gaps and the mid-year gaps in the states for which the mid-year gaps are quantified.  The initial gaps equal 10 percent of the states’ general fund budgets.

[13] It also includes one state, Hawaii, that did not have a deficit at the time of the enactment of its FY 2009 budget but has had a 2009 deficit open up since.

[14] The Congressional Budget Office estimates the aggregate cost of the FMAP increase provision to be $14.41 billion.  The estimates in this paper exclude a small share of this that would go to U.S. territories — about $29 million.

[15] In addition to this targeted assistance, all states would be “held harmless” for any decreases that might have occurred because of the normal annual recalculation of the FMAP.  Each state's 2009 FMAP would be set at least as high as its 2008 FMAP and each state’s 2010 FMAP would be set at least as high as its 2009 FMAP for the first two months of fiscal year 2010.

[16] Restrictions on eligibility include changes that make it more difficult for recipients to meet procedural requirements for enrollment or periodic renewal of their coverage

[17] States would not, however, move down to a lower tier if they began to recover during fiscal year 2009 or the first two months of fiscal year 2010.

[18] These figures are Center on Budget and Policy Priorities estimates based on states’ projection of Medicaid spending.