Stimulus: No Blank Check for States

Of the $200 billion states stand to get from the federal economic stimulus package, governors will have leeway in how to spend about $135 billion with the rest of the money restricted for specific uses.

President Obama is banking on states to spend their money quickly on repairing roads and patching gaps in state budgets to prevent layoffs and cuts to education and other social programs.

Congress didn’t write states a blank check, however, but instead directed much of the money into specific programs, including education, benefits for the unemployed and transportation, and largely used existing formulas to compute each state’s share. In all, the total package provides money for some 40 programs that involve states.

The streams of federal stimulus money that give governors the most flexibility include the $87 billion for Medicaid, the joint federal-state program to provide health insurance for the poor; $39.5 billion for a “state fiscal stabilization” fund designed to help states avoid cutting education; and $8.8 billion in grants for public safety and other government services.

These funds will go to a state’s general fund and can be used to offset cuts states would have had to make to other programs to balance their budgets, said Scott Pattison, executive director of the National Association of State Budget Officers. “The federal funds cover a lot of what states would have had to set aside themselves.”

The $135 billion that governors will get to spend with fewer strings is still about 40 percent of the $250 billion shortfall some experts figure states will face through 2011. States will continue to be under pressure to consolidate and streamline programs to balance their budgets.

“This is going to be a management challenge, because on one hand, you have to spend it rapidly, and the other hand, governors and states have to remember that the money is temporary, and you have to worry about the efficiency of the program and the stability of the program,” said Raymond C. Scheppach, executive director of the National Governors Association.

How to meet that challenge will be a major topic of conversation when the nation’s governors gather in Washington, D.C., for their annual winter meeting Feb. 21-23.

During the weekend, the governors are expected to meet behind closed doors with an Obama administration official, possibly Peter Orszag, director of Office of Management and Budget, to discuss implementing the stimulus package. OMB has already alerted department heads that it will lay out how spending information will be posted on the Web site, www.recovery.gov , aimed at giving Americans detailed information on how and where recovery dollars are spent.

NGA also is working on providing guidance to help governors meet all the bill’s requirements, including “transparency” and accountability. Governors know they will be under intense scrutiny to show they are spending the money wisely, and many have already appointed stimulus “czars” and created Web sites so that citizens can track the projects getting federal dollars (see list on the right).

Even governors who were the most vocal critics to state fiscal relief , notably South Carolina Gov. Mark Sanford and Texas Gov. Rick Perry, both Republicans, say they will take the stimulus money.

Also tentatively scheduled to meet privately with the governors this weekend are Ben S. Bernanke, chairman of the Federal Reserve, and Mark Zandi, chief economist and cofounder of Moody’s Economy.com.

Rebuilding the nation’s infrastructure will be a major theme of the NGA meeting and not just because of the stimulus package. Pennsylvania Gov. Ed Rendell (D), chairman of the National Governors Association, formally kicked off his infrastructure initiative last July.

In a private meeting, the governors also are expected to discuss ideas for paying for future infrastructure projects. Congress is preparing to overhaul the federal transportation program and replenish the Highway Trust Fund, the states’ main source of federal transportation dollars now supported by a federal gas tax. The American Society of Civil Engineers estimates that $2.2 trillion is needed to repair and upgrade the country’s infrastructure over the next five years.

The governors will go to the White House Monday (Feb. 23) to meet with President Obama and Cabinet members. It will be their first gathering since joining then President-elect Obama in Philadelphia last December to discuss how states can help jumpstart the economy.

Among the Cabinet members who could be on hand include Homeland Security Secretary Janet Napolitano, former Arizona governor, and Agriculture Secretary Tom Vilsack, former Iowa governor.

Another governor could be poised to join the Obama administration. Kansas Gov. Kathleen Sebelius (D) has been rumored as a top pick for secretary of health and human services. The president’s first choice, Tom Daschle, former U.S. senator from South Dakota, withdrew after admitting he failed to pay taxes.

See Related Stories:

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Stimulus prompts debate over police funds (2/11/2009)

Governors to track stimulus money (2/10/2009)

Governors react to stimulus proposal (2/6/2009)

Medicaid programs feel weight of recession (2/6/20090)

House stimulus plan wins state praise (1/12/2009)

Governors to pare back agendas (1/7/2009)

Budget gap could widen to $200 billion (12/15/2008)

Governors hopeful after Obama meeting (12/3/2008)

Govs turn to fixing infrastructure (7/15/2008)