Congress Approves Money for States in Tax Bill

Congress threw the states a $20 billion lifeline Friday (5/23) as part of a $350 billion tax cut plan supporters said would stimulate the economy. President Bush is expected to sign the bill into law within the next week.

The $20 billion of fiscal relief is a huge victory for states, many of which are beset by budget problems of historic proportions that are forcing them to raise taxes and cut programs. Total state deficits for this fiscal year are $21.5 billion; next year’s deficits total more than $50 billion, according to the National Conference of State Legislatures (NCSL).

Governors expressed their appreciation for the fiscal relief part of the tax bill.

“These monies will help governors continue to provide essential and critical services to our citizens,” said Idaho Gov. Dirk Kempthorne (R) in a press release issued by the National Governors Association (NGA). As NGA vice chairman, Kempthorne had been lobbying Congress for relief on behalf of his fellow governors.

The $330 billion tax cut passed by Congress was far smaller than Bush’s original $726 billion proposal, although critics said the true cost of the final bill is upwards of $1 trillion over the next ten years. The majority of the tax cuts are devoted to reducing the tax on dividends and speeding up income tax cuts for working individuals, married couples and families. The income tax cuts were scheduled to have occurred in 2006 under the tax bill Congress passed two years ago.

The state aid portion is divided in two parts.

Half of it $10 billion will be channeled directly through Medicaid, the state-federal program that provides health care to more than 40 million of the nation’s poor. The program’s costs have been growing by double-digit percentages over the past five years, leading many state lawmakers to complain that the program could bankrupt state governments in the not-so-distant future.

The Medicaid money will be retroactively disbursed over 15 months beginning April 1, 2003, according to NCSL.

The remaining $10 billion will be given to states in population-based grants that can be used to fund a wide variety of programs, from education to homeland security to road building and maintenance. The grants will be distributed over fiscal years 2003 and 2004, according to NCSL.

The amount of money flowing to each state varies greatly depending on population size. California and New York, for example, will receive $2.4 billion and $2.2 billion, respectively, according to the Federal Funds Information for the States (FFIS). Wyoming, on the other hand, will receive only $66 million.

For a table that describes the monies each state will receive, please visit http://www.ffis.org/.

Congressional approval of fiscal relief was nearly two years in the making. Governors first started lobbying Congress for help with the Medicaid program in the fall of 2001 as state revenues fell flat and the program’s cost spiraled upward. Their call for help found some traction in the Senate, but the Bush administration and the House were unmoved.

As state fiscal problems worsened over 2002 and early 2003, governors’ cries for aid grew sharper. They found an audience in a group of moderate Republican senators, including Maine Sen. Olympia Snowe (R) and Oregon Sen. Gordon Smith (R), who conditioned their support for Bush’s 2003 tax cut plan on the inclusion of fiscal relief for states. Despite the tax bill’s state aid, Snowe voted against the final package because she said its true cost was obscured by accounting gimmicks.

The key role these senators played in securing state relief was not lost on the governors.

“The nation’s governors are particularly grateful to those individual members of Congress who have worked so hard with us over the past two years to secure this much-needed relief,” Kentucky Gov. Paul Patton (D), NGA chairman, said in a press release.