Report: State Deficits Loom Despite Stimulus

The federal government paid out all but $1 billion of the anticipated $49 billion in stimulus money for states and localities for fiscal 2009, a Congressional watchdog reported Sept. 23.

But while stimulus dollars helped states patch holes in their budgets, “states will continue to be fiscally strained,” the U.S. Government Accountability Office said in its latest bimonthly report of how 16 selected states are using and tracking their recovery money.

In New York, for example, federal stimulus dollars helped address a $20 billion budget gap for fiscal years 2008-2009 and 2009-2010, but the state told GAO it still expects a $2 billion budget shortfall early in the current fiscal year that began July 1. California could face a $7 billion shortfall this current fiscal year. Officials in Michigan told GAO that the state’s general fund revenues for the upcoming fiscal year may fall to levels not seen since the 1960s, after adjusting for inflation.

At the same time states are using stimulus money to shore up their budgets, they also are spending time and money figuring out new quarterly stimulus reporting requirements, with the first reports due in October. The reports must include how they are using their funds and estimates of the number of jobs created and retained.

“This unprecedented level of detailed information to be reported by a large number of recipients into a new centralized reporting system raises possible risk for the quality and reliability of these data,” GAO said in its 163-page report.

More than three quarters of the federal stimulus dollars that went out to states so far were for Medicaid, the state-federal health program for the poor, and a “state fiscal stabilization fund” administered by the Department of Education aimed at preventing teacher layoffs and cutbacks in police and other crucial government work.

Several states said they were worried how they would meet the continued demands from the recession with less money, particularly on the Medicaid front, when increased funding will stop January 2011. New Jersey, for example, estimated it would need $550 million to replace the federal stimulus dollars. The Garden State saw a 3 percent jump in Medicaid enrollment, while Arizona experienced a 27 percent increase, GAO said.

GAO also found that some $11 billion of the overall $35 billion set aside for highway infrastructure has been obligated for almost 3,800 projects in the 16 states and the District of Columbia. Almost half of them have been for pavement improvement projects, because they did not require extensive environmental clearances, were quick to design, obligate and bid on and could employ people quickly, GAO said.

The report is the third in a series from GAO. The 16 states and the District of Columbia, targeted by the series, represent about 65 percent of the U.S. population and two-thirds of the stimulus assistance available.

Follow how states are managing the stimulus money and which programs are receiving funding as part of the recovery effort using Stateline.org’s stimulus special section.