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Has Congress Turned Its Back on State Budget Problems?

As I explained in my statement this morning, today’s report on state budget conditions from the National Governors Association and the National Association of State Budget Officers shows why it’s so important to restore the state fiscal relief the House suddenly dropped from jobs legislation last week.

The report opens with the stark warning that “Fiscal 2010 presented the most difficult challenge for states’ financial management since the Great Depression and fiscal 2011 is expected to present states with similar challenges.”

Those challenges, which stem largely from a recession-induced plunge in state revenues, will only grow if Congress allows the Recovery Act’s fiscal assistance for states to largely expire by the end of December, halfway through state fiscal year 2011.

On Friday the House — in a misguided response to the very real long-term deficit problems the federal government faces — dropped from its jobs bill a six-month extension of additional Medicaid funding for states, one of the Recovery Act’s two major pieces of state fiscal assistance.

We estimate that state budget shortfalls for fiscal year 2011 will hit $180 billion by the end of the year.  The House provision would have given states about $23 billion, enough to help them balance their 2011 budgets with fewer teacher layoffs, fewer cuts in services for seniors and jobless workers, and fewer other budget cuts that impede the recovery by reducing overall demand.   (The Commerce Department recently produced data showing that cuts in state and local government spending slowed economic growth in the first quarter of 2010 by half a percentage point, or $72 billion.)

The new NGA-NASBO report makes clear that Recovery Act assistance has greatly helped states deal with their shortfalls in a responsible, balanced way.  The only question now is whether Congress will let this assistance run out when the need for it as great as ever.