March 1, 2003

PRESIDENT’S CLAIM OF NINE PERCENT INCREASE
IN AID TO STATES IS HIGHLY MISLEADING
by Richard Kogan and Iris J. Lav

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President Bush this week countered criticism that he is not helping the states with their fiscal crises by pointing to increases in grants-in-aid to state and local governments that are included in his fiscal year 2004 budget.  He stated on February 24 that his budget provides a nine percent increase in these grants.  “One of the interesting things about the ’04 budget I’ve submitted is that there’s $400 billion worth of grants to states.  That’s a 9 percent increase,” the President said.[1]

This claim of nine percent increase is, however, highly misleading.

The President also stated that the nine percent increase in grants-in-aid to state and local governments exceeds the four percent overall increase in his budget for spending for discretionary (or annually appropriated) programs.[2]  This statement, as well, is misleading.  Under the President’s budget, grants provided to state and local governments through discretionary programs would decline by 0.6 percent between 2003 and 2004, after adjusting for inflation.  The President’s two statements are examined below.

The Nine Percent Increase

In short, far from helping states balance their budgets, the President is proposing to reduce the average purchasing power of aid that states and localities receive for purposes other than Medicaid.

Would Grants to States Do Better Than the Rest of the Budget?

The President’s remark that under his budget, state and local governments would receive a bigger funding increase (nine percent) than the increase he is proposing for discretionary programs overall (four percent) also is misleading.  As just noted, the President’s 2004 budget does not include anything close to a 9 percent increase in grants to state and local governments.  The nine percent figure that the President cited turns out to represent something else — the average annual rate of growth between fiscal year 2000 and fiscal year 2004 in total grants to state and local governments, including Medicaid.[4]  This rate of increase reflects, among other things, the increase between fiscal year 2000 and fiscal year 2001, which was the final Clinton budget year.  (The first Bush budget was the FY 2002 budget.)  This nine percent average rate of growth between 2000 and 2004 is not especially relevant to determining what level of increased assistance is being proposed now to help states weather the current fiscal crisis.

Furthermore, the nine-percent average figure for the 2000-2004 period includes both discretionary programs, which are appropriated annually, and entitlement programs such as Medicaid.  The President compares this nine percent average rate of growth over four years in entitlement and discretionary grants combined to the overall four percent increase in his budget just for discretionary programs in 2004.  Through this apples-to-oranges comparison, he makes it appear as though his budget treats grants to state and local governments much more favorably than it treats the rest of the budget.

In reality, the President is proposing to treat state and local governments worse, not better, than his budget treats programs generally.

Table 1
Grants-In-Aid to State and Local Governments in the FY 2004 Budget,
Including Medicaid

Budget Authority (funding) in billions of dollars
 

FY 2002

FY 2003

FY 2004

Discretionary Funding

$133.1

$124.7

$125.0

Mandatory Funding

244.8

262.1

273.2

Total Funding

377.9

386.8

398.2

Total Funding adjusted for technical anomalies*

377.1

380.1

397.3

In 2003 dollars (i.e., adjusted for inflation)

389.4

386.5

397.3

In 2003 dollars per capita (i.e., adjusted for both inflation and population growth)**

$1,392

$1,370

$1,396

Percent change, after adjusting for inflation  

 -0.7%

+2.8%

Percent change in real per-capita grants (i.e., after adjusting for both inflation and population growth)  

-1.6%

+1.9%

* Adjustments were made to exclude disaster relief funding in all years, to reflect funding for highways and mass transit as the level of obligations for those programs rather than the level of “contract authority,” to remove distortions that can occur when the level of “advance” appropriations changes from year to year, and to remove the proposed funding for “personal re-employment grants,” which the President has proposed for 2003 only.  These adjustments make only a small net difference while making the funding increase from 2003 to 2004 appear larger than if the adjustments had not been made.
** The dollar figures in these lines are the actual dollar figures, not figures in billions of dollars.

Table 2
Grants-In-Aid to State and Local Governments in the FY 2004 Budget,
excluding Medicaid

Budget Authority (funding) in billions of dollars
 

FY 2002

FY 2003

FY 2004

Discretionary Funding

$133.1

$124.7

$125.0

Mandatory Funding

97.5

99.5

90.6

Total Funding

230.5

224.1

215.6

Total Funding adjusted for technical anomalies*

229.7

217.4

214.8

In 2003 dollars (i.e., adjusted for inflation)

237.2

221.1

214.8

In 2003 dollars per capita (i.e., adjusted for both inflation and population growth)**

$848

$783

$755

Percent change after adjusting for inflation  

-6.8%

-2.8%

Percent change, real per-capita grants (i.e., after adjusting for both inflation and population growth)   -7.7% -3.7%
*  Adjustments were made to exclude disaster relief funding in all years, to reflect funding for highways and mass transit as the level of obligations for those programs rather than the level of “contract authority,” to remove distortions that can occur when the level of “advance” appropriations changes from year to year, and to remove the proposed funding for “personal re-employment grants,” which the President has proposed for 2003 only.  These adjustments make only a small net difference while making the funding increase from 2003 to 2004 appear larger than if the adjustments had not been made.
** The dollar figures in these lines are the actual dollar figures, not figures in billions of dollars.

   


End Notes:

[1] Address to the Governors, February 24, 2003, available at http://www.whitehouse.gov/news/releases/2003/02/20030224-1.html.

[2] The President said: “Of the 4 percent increase in discretionary spending, $400 billion, or a 9 percent increase, goes directly to the states.  That's a bigger increase than 4 percent, I guess is the point I'm trying to make to you.”

[3] Office of Management and Budget, Analytical Perspectives, United States Budget, Fiscal Year 2004, February 2003, Table 10-3.

[4] In his statement, the President said: “One of the interesting things about the ’04 budget I’ve submitted is that there’s $400 billion worth of grants to states.  That’s a 9 percent increase.  And as a matter of fact, the grants to states have been growing by 9 percent since I’ve been President of the United States.”  The President’s first use of the 9 percent figure is incorrect.  The second use of the 9 percent figure is correct but, as explained above, somewhat misleading.

[5] Over the past two years, since FY 2002, discretionary grants to state and local governments show an average decline of 5 percent per year, after adjustment for inflation.  Comparing 2004 levels with 2002 levels may be more indicative of the actual situation, since the FY 2003 figures shown in the budget the President submitted on February 3 represent the President’s FY 2003 budget request, rather than the actual 2003 funding levels included in the recently enacted FY 2003 omnibus appropriations bill.  The overall funding level for fiscal year 2003 in the omnibus bill is a little higher than the President’s 2003 budget request.  As a result, the decline from 2003 to 2004 in grants to state and local governments may be somewhat greater than is reflected in the text of this analysis.