Stimulus Question Looms: What Next?

With roughly half of the economic stimulus money already obligated, federal officials are turning their attention to helping states fund vital services such as education and health care when the one-time aid runs out, a top Obama administration said Friday (Sept. 25).

Edward DeSeve, President Obama’s special adviser on the recovery, declined to offer specifics on how Washington would help statehouses after the stimulus ends, including whether there would be another fiscal aid package for states. But he suggested that the fiscal relationship between the states and the federal government could change after the worst downturn since the Great Depression.

“At some point during the next two years, Congress is going to be faced with the need to rationalize the relationship between these spending accounts that they’ve given the states and the money they’ve appropriated to the states during this period and the great needs that the states have in their economies,” he said at a State Economic and Fiscal Forum for reporters co-sponsored by Capitolbeat and the Pew Center on the States , of which Stateline.org is a part. “Do we have the right fiscal balance between the states and the federal government?”

Seven months after Congress approved the $787 billion American Recovery and Reinvestment Act, the government has spending plans in place for states of about $247 billion, or roughly half of the total amount in the act not specifically designated as tax relief, DeSeve said. More money will make its way to the states over the next year to 18 months.

Still unknown, however, is how fast state budgets will recover. Job growth could pick up in 18 months, or it could take as long as 32 months, he warned. If states bounce back quickly, “the need for additional state fiscal relief is much, much less,” he said.

If it takes longer for states to recover, tax revenues could still be depressed by the time the federal infusion of cash dries up, putting state finances on shaky ground.

In that case, DeSeve said, “We want to have a conversation about the solutions at the right time.”

“Right now we don’t have any forward-looking policies,” he said. “No one has announced a second stimulus.”