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State-Federal Relations

Letter to President Bush Outlining NCSL's Suggestions for Economic Stimulus Package

October 5, 2001

The Honorable George W. Bush
President of the United States
The White House
Washington, D.C. 20500

RE: Economic Stimulus

Dear Mr. President:

The nation's state legislators offer to work with you and the Congress to address issues raised by the terrorist attacks of September 11. We applaud the enactment of economic and aviation assistance legislation. We are encouraged by movement to pass anti-terrorism and aviation security legislation. We agree with many who believe that a short-term, limited, counter-cyclical economic stimulus package warrants enactment.

In the wake of last month's tragic events, the states' fiscal health has declined rapidly. Although the full economic impact of the terrorist attacks will not be known for some time, states are experiencing significant drops in tax payments and greatly increased demands for safety net spending. Some states have implemented across-the-board spending cuts, imposed hiring freezes and travel restrictions, and have delayed tax refunds or payment of invoices to ease their cash flow.

Many states were struggling to meet their balanced budget requirements as a result of the economic downturn prior to September 11. Twenty states took extraordinary action, such as enacting across-the-board cuts or tapping rainy day funds, to preserve balanced budgets for FY 2002. Declining sales and income tax revenues and the burgeoning costs of Medicaid were among the major concerns faced by state lawmakers in developing their budgets for FY 2002.

When the national economy suffers, the effects on state budgets are immediate and the process of recovery can be slow. The National Conference of State Legislatures pledges to work with you to enact a counter-cyclical stimulus package to provide immediate critical help to revitalize our economy. We suggest your consideration of the attached options that we believe would provide economic incentives, address immediate needs raised in the aftermath of September 11 and ensure the stability of state budgets.

Sincerely,

cc: Lawrence Lindsey
Ruben Barrales

REVENUE ISSUES: Some tax changes perhaps merit enactment if they are directed toward those most in need and do not compromise long-term federal and state fiscal stability. NCSL suggests that you:

1. Exercise caution in any changes you propose to make to the federal tax code. Because most states conform to some degree to the federal tax code, reductions at the federal level can produce revenue losses, both short- and long-term, at the state level, thereby exacerbating current state budgetary conditions. NCSL urges you to consult with state and local government elected officials on any proposed federal tax changes.
2. Consider additional income tax rebates similar to the structure used in the Economic Growth and Tax Relief Reconciliation Act of 2001. Such rebates would likely be spent quickly, thus boosting the economy. Rebates in conjunction with a temporary reduction of the payroll tax for lower-income individuals who did not receive the earlier credit would provide a short-term economic stimulus. Moreover, a reduction in payroll taxes may have a positive impact on state expenditures since states, as employers, would benefit from temporary tax liability reduction.
3. Accelerate the increase of the child tax credit to $1,000.
4. Support a short-term extension of the moratorium on state and local taxes on Internet access and retaining the grandfather clause protecting the nine states presently collecting the tax, which amounts to over $80 million a year. A short-term extension would give the state legislatures at least two legislative sessions to enact sales tax simplification and eliminate the burden for out-of-state sellers to collect a state's sales tax. A recent Forrester Research-University of Tennessee report estimates sales tax losses this year could exceed $16 billion. Thus, federal legislation is needed to authorize states to collect sales and use taxes. As much as NCSL would prefer to see that legislation enacted, it has proven too contentious up to this point.
5. Avoid placement of any restrictions on state business taxes. State corporate tax receipts are already down over 11 percent from the previous year. Proposals to restrict nexus for state business activity taxes could result in another $9 billion to $11 billion revenue loss that could force counter-cyclical actions to meet balanced budget obligations.

 

WORKER ASSISTANCE: Unfortunately, thousands of workers have lost their jobs and, with that, their capacity to meet obligations and contribute to the economy. Former welfare recipients with low-skill jobs may be the most affected by this downturn because many transitioned into low-wage service and retail jobs. State legislators believe that an extensive - but temporary - safety net for unemployment benefits, health insurance and job retraining, beyond benefits already in place, is essential. Therefore, NCSL suggests that the federal government:

6. Provide workers from all industries who have lost employment with 100 percent federally funded unemployment insurance benefits beyond those they would receive from states.
7. Extend eligibility for unemployment insurance to those who were temporary or part-time workers and make unemployed TANF recipients automatically eligible.
8. Supply additional funding for state displaced worker efforts as well as for adult and youth training programs under the Workforce Investment Act in order to offer all workers who seek help in a state One-Stop system with training and skill upgrading opportunities. The system's goal should be to enhance workers' skills so that they may return to their former employers with improved skills or find better paying jobs.

 

MEDICAL ASSISTANCE: Over the past several months, states have experienced significant increases in their Medicaid rolls. These increases are likely to continue until the national economy recovers. In addition, state Medicaid programs have also experienced unprecedented increases in the cost of providing pharmaceutical assistance. The enrollment increases and cost increases have caused many states' Medicaid programs to exceed their projected budgets for the coming year.

Healthy workers and families are necessary for a healthy economy. State Medicaid and SCHIP programs will continue to provide a safety net for low-income families during these stressful economic times. However, most states will not be able to absorb additional costs to these programs. NCSL supports efforts to provide health care coverage to individuals and families who lost coverage due to the events of September 11, 2001. We urge you to:

9. Provide premium assistance for COBRA continuation benefits. Many affected workers or their dependents will be eligible for COBRA continuation coverage. Unfortunately, this coverage is expensive. Without assistance, many of these individuals or families will not be able to afford the premiums. We urge you to establish a premium support program that would provide assistance on a sliding fee scale basis, including 100 percent premium support for low-income individuals.
10. Establish a temporary medical assistance program for those ineligible for COBRA. Some individuals will not be eligible for COBRA continuation coverage. We urge you to establish a temporary medical assistance program for these individuals that is fully federally funded.
11. Hold harmless those states that would otherwise have their federal matching payments (FMAP) under Medicaid reduced as a result of the scheduled update. Under this proposal, states scheduled to receive an increased FMAP would still receive it. This would ameliorate the lag between the updates, based on per capita income and the recent economic downturn.
12. Waive the 6-month noncoverage requirement under the SCHIP program. This would permit parents to immediately enroll their children in SCHIP if the children would be otherwise eligible.

 

INVESTMENTS: There are numerous state-federal programs that, if enhanced fiscally, could provide immediate employment, economic and community benefits. NCSL suggests that you:

13. Develop a transportation infrastructure package that increases federal funding to states for greater investment in highway and bridge construction and maintenance, as well as increased mass transit infrastructure, to ensure that states are able to continue to move goods and passengers across the country.
14. Provide federal funding and tax preferences for the development of high-speed rail and improvement of other passenger rail improvements.
15. Provide airports with federal reimbursement for the additional costs of security measures mandated by the FAA. Allow airports to temporarily use PFC and AIP funds for security costs and, if needed, to pay outstanding debt obligations. If security functions become the responsibility of states and localities, provide a stable and consistent source of federal funds to pay for these services.
16. Boost FY 2002 funding for the state drinking water and clean water revolving funds.
17. Provide an immediate appropriation for school construction and repair grants. Federal assistance to address the $125 billion needed for public and charter K-12 facilities would stimulate the construction industry all over the country. The existing federal mechanism for public school facilities assistance is the Qualified Zone Academy Bond (QZAB), which distributes tax credits to those institutional investors who purchase these bonds, allowing states and school districts to bond and build at face value-without paying burdensome interest rates. In order to make this program more compatible with state programs, the QZAB program should be amended to allocate all tax credit authority to the state, for subsequent distribution to local school districts.

 

STATE-FEDERAL PARTNERSHIPS: Particular state-federal programs provide unique and valuable services to individuals and families harmed by an economic downturn. NCSL believes the following programs merit priority attention. We suggest that you:

18. Enact program simplification and reform of the food stamp quality control system, such as that currently under consideration by the House of Representatives and the Senate Agriculture Committee. Food Stamps are an important counter-cyclical tool. The food stamp program is critical for the unemployed, underemployed and working poor. It is vital to our response in emergencies. Program simplification and reform is essential to ensure that nutrition assistance is there for those in need. NCSL urges you to use this opportunity to make program simplification and reform changes and to consider benefit increases as part of a response to the economic downturn.
19. Distribute $300 million in emergency Low Income Home Energy Assistance Program funds approved in the FY 2001 supplemental appropriations bill.
20. Continue the TANF supplemental grant program for one additional year and fund it at $319 million. These grants were designed to ensure that certain states with rapidly growing populations had adequate resources to carry out the goals of the TANF program. A one-year continuation will enable certain states to continue the progress of welfare reform and allow time to deal further with this issue during welfare reform reauthorization. Also, continue the TANF Contingency Fund for State Welfare Programs effort.
21. Fund the Social Services Block Grant at $2.38 billion for FY 2002. This funding level is the amount agreed to as part of the 1996 federal welfare reform legislation. States will be called upon to provide social services to families as part of our economic recovery efforts. Our ability to target funds to a broad array of services and flexibility to define needy recipients makes the SSBG a crucial source of assistance to address local needs. NCSL further believes that states should be allowed to continue to transfer 10 percent of their TANF funds into SSBG.
22. Boost the federal government's funding commitment to the Promoting Safe and Stable Families program and the Independent Living Program for education and training vouchers for youth aging out of foster care. Economic uncertainty puts an additional strain on these vulnerable children.
23. Include Individual Development Accounts as one tool that will enable low-income families to save, build assets and enter the financial mainstream. IDAs produce higher earnings from additional education, new homes, interest earnings, fewer welfare recipients and increased tax receipts for all levels of government.