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Obama has few options to aid strapped states
Indeed, federal funding accounts for only about 10 percent of education spending and 30 percent of transportation spending.
While Obama's overhaul of the nation's healthcare system may be his signature achievement, it is now also being undercut by fiscal hardship in the state capitals. With fewer people employed, more are seeking Medicaid but its funding has not kept pace.
As a result, states are carrying out a wide array of reductions, limiting which doctors can participate, and cutting back on diabetes treatments, vision and dental care, and a host of other medical services.
In some cases, the Obama administration has actually aggravated the states' money problems, according to analysts. The December tax deal, which in part renewed Bush-era tax cuts, allows companies to deduct all business investments from their taxes. The Center on Budget and Policy Priorities said this change could cost states more than $11 billion in tax revenue over two years.
Some analysts warn that a growing number of local governments may not be able to pay their debts. Financial analyst Meredith Whitney , one of the few who correctly predicted the upheaval in the banking sector in 2007 and 2008, has projected 50 to 100 defaults worth hundreds of billions of dollars. Other analysts say that prediction is too dire.
While speculation has mounted that the Obama administration could be asked to bail out troubled states and localities, federal officials have so far shown no interest.
In 2009, amid the financial crisis, California turned to the Treasury Department for help with a $24 billion budget shortfall, but was rebuffed. Instead, California tapped a federal program that helped states issue bonds. The program, known as Build America Bonds, expired in December.
Martin Weiss, chief executive of Weiss Ratings, said he expects the federal government will provide some support to ailing states but not bail them out entirely.
"They will provide some funding, but they will not go all the way and be the lender of last resort," Weiss said. "That limited funding would probably be enough to avoid defaults."