NCSL supports a federal economic stimulus package to spur capital investment and encourage job growth. Because states must maintain balanced budgets, some actions that states will necessarily take could work against broad and sustained economic recovery. Therefore, NCSL believes that a short-term economic growth package must recognize and account for the critical link between states and the national economy. NCSL calls upon the federal government to work with states in developing any changes in personal or corporate income taxes; provide temporary relief for states in carrying various state-federal partnerships; and narrow the widening gap between federal mandates and national expectations and the federal funding levels to accomplish them.

The Executive Committee of the National Conference of State Legislatures recommends the following to members of Congress and the Administration:

• Unlike the federal government, states cannot deficit finance to help stabilize an economic downturn. To meet balanced budget requirements when revenues decline during an economic slump, states must raise taxes and/or cut spending by deferring projects and reducing or eliminating services.
• States are now facing their worst budget gaps since World War II. In 2003, 14 states faced a gap in excess of 10% of their general fund budget. States enacted spending cuts and/or tax increases to balance their budgets for FY 2003 and are facing similar – or worse – challenges for FY 2004. State budget-balancing actions constrain economic growth:
• State tax increases offset the stimulus provided by federal tax reductions.
• State layoffs and cancellation of capital projects hinder economic growth.
• State cuts in public services may counteract federal efforts to provide assistance to the unemployed and those most affected by an economic downturn.
• The federal government has 2.7 million civilian employees and 1.7 million active duty forces; state governments employ 5.0 million individuals and local governments employ an additional 11.2 million. (Sources: 2001 data from the Census Bureau and the Department of Defense)
• State and local gross investment, a measure of public investments in structures, equipment and software ($236.2 billion) is more than double federal gross investment ($99.7 billion). State and local consumption, a measure of public purchases of durable and nondurable goods and services ($993.7 billion), far exceeds federal consumption ($528.5 billion). (Source: 2001 data from the Bureau of Economic Analysis)

• Meet the target for full funding of the Individuals With Disabilities Education Act.
• Provide full funding for states to meet current and prospective requirements of the No Child Left Behind Act.
• Meet the full FY 2003 federal commitment to the Help America Vote Act.
• Provide first responder grants at the president's recommended level of $3.5 billion for FY 2003.

• Pursue any federal personal and corporate income tax relief through tax credits, such as accelerating the scheduled increase in the child tax credit, and other changes in federal tax liability, rather than through exclusions or deductions.
• Avoid substantive changes in IRS reporting requirements upon which states rely, such as the Form 1099 DIV.
• Provide relief for states from the employer share of payroll taxes.
• Maintain a level playing field for tax-exempt bonds and lift administrative burdens that inflate the cost of public financing.
• Recognize that state legislative sessions are short. States that are not in session can neither conform to, nor decouple from, federal tax changes that take effect retroactively.

• Boost federal investment in highways, mass transit and passenger rail.
• Provide additional immediate investment in water and wastewater infrastructure projects.

• Delay implementation dates, provide temporary waivers or reductions of state matching rates and/or suspend program sanctions or permit states to pursue corrective compliance plans.
• Prevent the scheduled reduction in disproportionate share hospital (DSH) payments, extend the inflationary increase adjuster to FY 2003-FY2005 and increase the DSH cap by 3 percent for "low" DSH states.
• Prevent unspent funds for the State Children’s Health Insurance Program from reverting to the federal treasury.
• Infuse $3.6 billion in general revenues into the existing Temporary Extension of Unemployment Compensation system.
• Assist unemployed workers who are seeking employment and encourage job retention through an increase in mandatory funds for the Child Care and Development Block Grant, with a temporary match waiver.
• Supplement existing block grants, such as the SSBG or NEGs, for FY 2003 and/or FY 2004.
• Hold harmless states confronted with Medicaid FMAP reductions for FY 2003 and FY 2004.
• Provide a temporary, unconditional boost in FMAP for FY 2003 and FY 2004.
• Consider revenue sharing with a trigger mechanism to determine assistance such as unemployment or average income.