Stimulus funds at the center of state budget troubles

As the federal dime dwindles down, the end of stimulus funds may be partially to blame for tough decisions legislators are forced to make in state budget showdowns.

Some states are nearing government shutdowns because state lawmakers simply can’t agree on what and how much to cut, while others face heat on big cuts their state has been forced to make.

California’s lawmakers aren’t getting paid this week because they couldn’t agree on a budget in the time state law requires. In Minnesota and Iowa, state shutdowns loom as state lawmakers have continued to spar over where to appropriate funds.

Meanwhile, for those states like Ohio, Florida, Michigan and New Jersey where Tea Party favored newly elected governors are slashing budgets, constituents and opponents are making noise.

Former state budget adviser Donna Arduin attributes this string of troubled and slimmed down state budgets to an unusual set of economic circumstances that states have been presented with.

Arduin, who’s worked on troubled state budgets for Republican governors such as California, Florida, New York and Michigan, said the federally sponsored funds in the American Recovery and Reinvestment Act have further burdened states’ budget battles.

“When the stimulus was passed, they knew the money was going to go away, the strings that were attached increased their spending requirement,” Arudin said. “Because they used the stimulus money, they didn’t make budget reductions that they would have made the last two or three years. They’re facing a situation that is somewhat unusual, the stimulus money is gone; the economy hasn’t recovered.”

(CBO: Stimulus law will cost $43 billion more than estimated)

And the states are up against a clock—they’ll be facing what many experts call the “Medicaid Cliff” on July 1, when extra, stimulus-backed Medicaid funding ceases and states are left to pick up the bill virtually on their own.

About $48 billion in federal Mediciad assistance to the states will evaporate, at a time when Medicaid needs continue to grow, Moody’s Economist Daniel White said.

(Greenspan: Stimulus contributing to lagging recovery)

“Obviously states are cutting other places to fund this,” White said. “A lot of the layoffs will start to happen in July and August; we’re going to see state and local government employment decline.”

At a time when many states were already spending too much, adding stimulus funds to the mix may have been hurtful rather than helpful, says American Enterprise Institute Resident Scholar Andrew Biggs.

“The states are in a difficult situation for a lot of reasons of their own making,” Biggs said. “Giving them more in this situation is (not) the answer.”