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House and Senate leaders reached an agreement this week that greased action on an economic stimulus bill. Today, the Senate adopted the bill 85-9 after the House passed it 417-3. The bill is expected to be signed into law by President Bush. Unemployment, TANF supplemental grants. TANF contingency fund, tax credit provisions supported by NCSL were included. However, a depreciation provision will force offsetting cuts in most states' budgets.

TANF Supplemental Grants

The bill restores funding for the TANF supplemental grants that were not funded in FY02. Under the 1996 welfare reform law, grants were provided to states for FY 1998 through FY 2001. The bill extends this grant through a one-year extension for FY 2002. Without Congressional action, no states could receive a supplemental grant. Seventeen states have received supplemental grants. The 17 states are Alabama, Alaska, Arizona, Arkansas, Colorado, Idaho, Louisiana, Mississippi, Nevada, Texas Utah, Florida, Georgia, Montana, New Mexico, North Carolina, and Tennessee. When federal welfare reform legislation was drafted in 1996, Temporary Assistance to Needy Families (TANF) supplemental grants were included for states with high rates of population growth and with historically low levels of welfare spending per capita. The President has proposed a continuation of the supplemental grants for FY03.

Contingency Fund

It includes restoration of the $2 billion TANF contingency fund that also expired in FY02. The contingency fund is designed to have federal cost-sharing during an economic downturn. Trigger mechanisms and state matching and maintenance of effort requirements are unchanged, The President has proposed a continuation of the contingency fund for FY03.

Unemployment Benefits, Depreciation and Other Provisions

To reach agreement, House and Senate negotiators dropped all provisions to provide health care assistance to the unemployed and an accelerated reduction in income tax rates supported by the administration. The final version of the legislation:

1. Extends unemployment benefits for an additional 13 weeks in most states; workers in those experiencing a high rate of unemployment are eligible for an additional 13 weeks of assistance. NCSL strongly supported this benefit
   extension, which is 100 percent funded by the federal government.
2. Repeals the limit on "Reed Act" distributions to states of funds from the Unemployment Trust Fund. Up to $8 billion in excess federal funds as of the close of FY 2001 will be transferred to state accounts. Depending on state law, these transfers may be used for the payment of cash benefits, for benefits to individuals not otherwise eligible for regular unemployment compensation and for administration. NCSL supported this provision.
3. Allows a first-year depreciation deduction equal to 30 percent of the adjusted basis for certain qualified property acquired after September 10, 2001 and before September 11, 2004. Since it is difficult for states to use a depreciation schedule that differs from that used by the federal government, this provision has been estimated to impose a cost on the states of at least $14 billion. NCSL opposed this provision and has consistently argued for an investment tax credit to stimulate business investment.
4. Extends expiring tax provisions, including several energy credits, the Welfare to Work Tax Credit, Work Opportunity Tax Credit, and the authority to issue Qualified Zone Academy Bonds. NCSL has consistently supported each
   of these tax credits.

For more information, see the Joint Committee on Taxation's description of the legislation at http://www.house.gov/jct/x-12-02.pdf

NCSL Staff Contacts: For Human Services provisions, please contact Sheri Steisel or Lee Posey, at 202-624-5400. For all other provisions, please contact Alysoun McLaughlin, Federal Budget and Taxation Policy Specialist, at 202-624-8691.