Money Stimulates Debate in States Over Plan's Goals

Traffic like this on U.S. 290 near Houston has some calling for a toll road and light rail. Instead, a suburban loop parkway is planned.
Traffic like this on U.S. 290 near Houston has some calling for a toll road and light rail. Instead, a suburban loop parkway is planned. (2004 Photo By Steve Ueckert -- Houston Chronicle)
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By Alec MacGillis
Washington Post Staff Writer
Monday, March 9, 2009

As tens of billions of dollars in stimulus funds begin to flow across the country, states and federal agencies are gripped by disputes over whether the money is being used in ways that violate the letter or spirit of the legislation, battles that raise new questions about precisely what the intent of the legislation was and that threaten to delay the infusion of funds into the staggering economy.

Kansas may save some of the state funds that will be freed up by stimulus money it is getting -- even though putting money in the bank would not stimulate the economy. Texas is spending nearly a tenth of its transportation funding on a long-delayed highway loop around Houston, despite criticism that the project goes against President Obama's call to move away from oil dependence. West Virginia wants to expand access to Medicaid but is still waiting for an answer about whether that goal is being encouraged under the law.

In many ways, the questions swirling at the state level are a continuation of unresolved debates in Washington over the purpose of the $787 billion package -- whether it was meant solely to boost the economy or also to lay the groundwork for longer-term reforms and transformation.

"There's definitely a lot of confusion in state capitals about what the Recovery Act means," said Chris Whatley of the Council of State Governments, who is traveling the country dispensing advice to state officials. "They're making budget decisions now, and there's still this base level of uncertainty. . . . There's an inherent tension in the differing goals in the bill."

In many states, the debate revolves around what to do with the state money that has been freed up by an $87 billion stimulus provision to increase for two years the share of Medicaid costs covered by the federal government.

Patient advocates and medical providers say the provision was clearly intended to expand Medicaid spending, both to stimulate the economy and to help people in need. States, they say, should expand the services that are covered, increase provider payments, broaden eligibility rules or keep the freed-up state money on hold in anticipation of higher Medicaid demand.

In Virginia, the state hospital association urged the state to set aside much of the $600 million made available by the increased federal share to cover an anticipated surge in Medicaid costs in the next few years, which will be a particular challenge once the stimulus funds dry up. But the governor and legislature have agreed instead to use the freed-up money to balance the current overall budget to prevent layoffs in other areas -- a course most other states are also pursuing.

Katie Webb, senior vice president of the hospital association, said the state's decision was unsurprising but shortsighted, while legislators counter they had no choice but to cover the current gaps. "It doesn't prepare us for what's going to happen," Webb said. "I guess I thought the intent of Medicaid stimulus was to use the money for Medicaid."

This debate has perhaps been most stark in Kansas, where Republican leaders in the legislature want to use some of the state money freed up by the increased federal Medicaid share not just to cover other spending but also to comply with a state requirement that its budget contain a small end-of-year cushion. It is unclear whether this is allowed under the stimulus rules, which forbids states to use the money to fill "rainy day" funds.

But Jay Emler, chairman of the Kansas Senate's Ways and Means Committee, said he was all for socking the money away. He said that after he lost his corporate job 10 years ago, he was careful to save any additional money he got in the years afterward, and that the state should respond the same way.

"When [the stimulus] runs out, we're going to be in a world of hurt . . . so I'd rather see this go into a fund that we would not be able to access except for emergencies," he said. "While this is a 'stimulus' package, that's not how I run my personal life. I don't know a whole lot of people who go out and spend if they realize that in two years they're not going to have money."

This approach dismays advocacy groups in Kansas. The state, they say, would do much more to stimulate the economy -- and improve its fiscal prospects -- if it spent the freed-up state money on shortening the waiting list for people with developmental disabilities, raising pay for direct-care workers or lowering the income threshold for Medicaid.

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