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Facing Shortfalls, States Seek Emergency Aid From Washington
California Gov. Arnold Schwarzenegger, whose state faces a $28.7 billion budget gap, said Washington "has to get us out of this mess now."
(By Max Whittaker -- Getty Images)
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Governors, state officials, economists and others are careful not to use the term "bailout" when speaking of federal aid to states.
Schwarzenegger told the Greater Fresno Area Chamber of Commerce last week that the federal government gives California 80 cents for every tax dollar the state sends to Washington -- meaning there is $40 billion being held back. "So it's not like we're asking for a bailout, because it's our money. We're just saying, 'Hey, give us some of our money back,' " he said.
In New York, Errol Cockfield Jr., the governor's spokesman, said the state each year gives the federal government $89 billion more than it gets back, so Paterson prefers the term "handback."
Lav said: "It's federalism. . . . I wouldn't call it a bailout -- it's government to government."
One of the costliest problems for the states now is Medicaid reimbursements, and governors are calling on the federal government to increase its share. Paterson's plan, for example, would save $572 million by reducing New York's reimbursements for certain procedures and eliminating the automatic inflation adjustment.
But the problem experts foresee is that during a recession, many more people go onto Medicaid, typically as they lose their jobs and company-sponsored health insurance. During the 2001-2004 recession, Medicaid enrollment increased by an estimated 17 percent, or about 6 million people.
The economic crisis has aggravated another problem for some large states: funding their unemployment insurance funds.
State trust fund reserves had fallen to $36.7 billion by Sept. 30, a 10 percent decline from a year ago, according to the National Employment Law Project, a New York-based organization that advocates for low-wage and unemployed workers. As of September, five states -- Michigan, Indiana, New York, South Carolina and Ohio -- were not solvent, with reserves covering three months or less of their average monthly payments, according to the project.
Eight states -- New Jersey, California, Kentucky, Missouri, Wisconsin, North Carolina, Rhode Island and Arkansas -- are nearly solvent, with reserves to cover four to six months of average payments. And an additional six states fall into the seven- to 11-month range -- Pennsylvania, Minnesota, Idaho, Illinois, Connecticut and Massachusetts.
No unemployed people should see their benefits affected. But at least six and as many as 10 states will have to borrow from the federal government in the first half of next year to keep their funds solvent, according to Andrew Stettner, deputy director of the Employment Law Project.
States have had to borrow before, Stettner said, but not so early in a recession. Michigan is already borrowing. Indiana is on the brink. And a handful of other states are in line. "This isn't the way the system is supposed to work. The system is supposed to stand on its own two feet," Stettner said. "You'd hope states would have enough money in the first year of this kind of job market.
"The concern is really that there's going to be sustained trust fund deficits for years to come," he said.
