Breathing Room: October/November 2009

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U.S. Capitol

A panel of legislators and staff tells State Legislatures that the federal recovery money took some of the sting out of the recession.
But there’s more pain to come.


By Jeff Hurley and Carl Tubbesing

It’s been nine months since President Obama signed the American Recovery and Reinvestment Act, the $787 billion package intended to pull the country out of its economic tailspin.

In that time, all but a handful of state legislatures finished their sessions for the year, passed their budgets and, in one way or another, accommodated the various streams of stimulus money that have begun to flow into their states. They’ve appropriated the money that was theirs to appropriate. They’ve wrestled with governors over the money that wasn’t. And they’ve set up oversight mechanisms to adhere to the law’s emphasis on transparency and accountability and begun to see first-hand how the stimulus law is working.

State Legislatures interviewed four Republicans, four Democrats and two staff fiscal officers to find out their thoughts on the recovery money. Did it help balance budgets and create jobs? Were too many strings attached? And what will happen in two years when the money runs out?

The recovery money began arriving during the early spring, just as most legislatures were confronting the worst fiscal situation in several generations.

State Legislatures: How has the recovery money helped your state?

Maine Speaker Hannah Pingree: As a state that has had a very difficult budget year, the stimulus funds made a horrendous budget a tough but not impossible budget.

Utah Speaker David Clark: We cut our budget by 15 percent and backfilled half of that with ARRA funds. The pain of the recession has been delayed a year, hoping the economy comes back. It has basically allowed a year’s postponement of our budget challenges.

Missouri Senate President Pro Tem Charlie Shields: Missouri was in better shape than other states. We previously had cut Medicaid. Despite these cuts, we had a pretty big hole to fill due to declining revenue. The stimulus funding propped up the state budget through enhanced Medicaid match funds and education.

California Senator Denise Ducheny: Without the Medicaid and education money, California’s budget would have been much worse.

West Virginia fiscal officer Fred Lewis: The stimulus has been a terrific help in preventing tax increases and curbing spending cuts, as it has effectively helped balance the budget in West Virginia.
Ohio Senate President Pro Tempore Tom Niehaus: It is likely the use of these funds alleviated the need for deeper spending cuts or additional revenue alternatives.

Backers of the recovery act argued it would create as many as 3.5 million jobs. While some state leaders and staff do not see a lot of job creation, they tend to agree the recovery funding has preserved jobs.

SL: Is the recovery act creating jobs?

Pennsylvania Representative Curtis Thomas: Much of what Pennsylvania has received so far has been for shovel-ready transportation projects. These projects have likely sustained existing jobs more than creating jobs.

Kentucky Senate Majority Floor Leader Dan Kelly: The act has been most effective in maintaining road-building jobs and keeping them on schedule.
Niehaus: I’m not sure of any assessment has shown any jobs were created or saved or at this point have accomplished what the stimulus set out to achieve.

Although it has money for many programs, the recovery act’s strongest focus is on Medicaid, education and transportation.

SL: What ARRA programs have been most effective in your state?

Shields: The Medicaid money has certainly had an impact. It has kept the state’s Medicaid program whole and allowed us to use some of the flexible money in other places. Missouri was on a seven-year implementation of a K-12 school funding formula and we were able to stay on track with the stimulus money. Furthermore, we were able to increase funding for elementary schools while secondary and higher education were held stable.

Pingree: The two biggest pots were Medicaid and education. Funds from both areas were used to keep programs and services alive.

Thomas: The money for education has not been used for reform; rather it has gone to fill budget gaps.

Clark: The act really helped Utah regarding transportation needs. We had already committed $3 billion for roads. The stimulus package provided $213 million for transportation, and $193 million of this went to the roads project. Utah has been at the head of the pack nationally with having dollars ready to go to work.

Kelly: Transportation has been the best aspect of the act and has been most effective in maintaining road-building jobs and keeping projects on schedule.

Pingree: It’s been working and putting people to work. Funding has gone toward major transportation projects on our two interstates, along with roads in smaller areas and bridge projects. It’s been useful, but it’s filling up a half-empty glass, because there is still a backlog and it doesn’t address all of the state’s transportation problems.

Thomas: The public at large has benefited from the infusion of dollars for shovel-ready transportation. Pennsylvania in particular has bridges that need serious repair and the recovery dollars have allowed that to happen.

Oregon Senate Majority Leader Richard Devlin: We believe the transportation money is responsible for 4,600 jobs. There is the argument whether ARRA funds are creating or saving jobs. The bottom line is they are keeping people working.

SL: What’s going to happen when the recovery money goes away?

Niehaus: Short of some miraculous recovery, while the short-term boost from ARRA has helped, long-term we’re just pushing the problem into 2011 and 2012.

Clark: Utah has identified a $700 million cliff and that only gets us back to even. This is especially difficult because Utah is a growing state. It seems we will have to have spending cuts or tax increases to deal with this issue.

Tennessee fiscal officer Jim White: The governor took recovery funds that weren’t committed to existing programs and used them to offset reductions he had proposed. Thus, we effectively postponed these cuts by one year and gave agencies time to plan how they were going to meet reductions. Rather than blindly walking off a cliff, the state is positioned to know in advance how it is going to deal with these programs.

Kelly: The stimulus is providing Kentucky with time to downsize spending in a responsible way. However, it’s difficult to say that programs facing a cliff won’t be a problem. We’re making good use of the time to scale down spending in an orderly fashion. We’re not putting off the hard decisions, because we recognize there still are hard decisions to be made.

Shields: We are trying to withhold some of the money. We did not spend all of it this year and are holding it back, knowing the difficulties that lie ahead.

Lewis: We have been able to work with the Centers for Medicaid and Medicare Services to reserve some state-supplanted recovery funds, but not into a rainy day fund. This is one example of overcoming the drop in funding from the act in forthcoming years.

Following passage of the recovery act, a handful of governors said they would not take the stimulus money. That concerned some legislators about what their role would be in allocating the recovery money.

SL: How have the legislature and the governor worked out their roles in allocating the recovery money?

Kelly: Both realized early that spending authority would be a problem. In fact, the executive branch was willing to work with the legislature because of the seriousness of the situation. Both sides worked to develop good communication and collaboration.

Shields: The Legislature passed a bill that stated that all ARRA funds must go either to a stabilization fund or a stimulus fund, each of which was appropriated by the Legislature. This basically stopped any infighting between the Legislature and the governor.

Pingree: Overall, we had a good relationship with Governor Baldacci. We sat down with him in January and decided to have good communication and be engaged with one another.

Clark: Other than the stabilization fund, the Legislature has control on ARRA spending, and we just dropped these funds into the existing process. Governor Huntsman did not want to create a new system, so both sides sat down and discussed how to handle it. This process was actually more civil and statesmanlike than in the past.

Devlin: There have not been many problems between the governor and the legislature. The Medicaid and the stabilization money went through the legislative budget process.

SL: How could the recovery act have been improved?

Niehaus: The No. 1 issue is flexibility and to have fewer strings attached.

Clark: I have been frustrated at times trying to understand the strings attached and what stipulations there were.

Lewis: More flexibility would have been desirable. If it had just been an outright grant to the state, legislators could have decided how best to use the money.

Pingree: Legislators were touchy that a lot of power was given to the executive branch. That could have been recognized in a different way in the stimulus.

Lewis: A lot of power is vested with the governors. It would have been useful for a provision in ARRA to recognize legislative authority. It also may have been more convoluted than it needed to be.

Thomas: At some point, states and the federal government need to think outside the box on revenue enhancement. For me, that means getting congressional approval of the streamlined sales tax agreement.

The group showed remarkable agreement on the issue of how the recovery act could have been better—more flexibility, more legislative authority and fewer complicated rules. In the end, though, the group likely would agree with Kelly’s final word.

Kelly: The stimulus bill could alway have been done more efficiently. But for the speed with which it had to be done, it has been effective.

Who We Talked To

The legislators and staff who participated in the interviews have been in the middle of their legislatures’ economic recovery activities. There are three Westerners, three Southerners, two Midwesterners and two Easterners in the group. There is also good representation of large, medium and small states. Their states’ FY 2010 budget gaps ranged from 4.5 percent in West Virginia to 35 percent in California. The legislators are evenly divided between Republicans and Democrats.

Speaker David Clark, Republican, Utah. Clark is in his first term as speaker, having served previously as House majority leader. Clark was elected to the Utah Legislature in 2000. According the NCSL’s July survey of state fiscal conditions, Utah’s budget gap for FY 2010 was 13.5 percent of its general fund budget.

Senator Richard Devlin, Democrat, Oregon. Devlin is the majority leader of the Oregon Senate. He was elected to the Oregon House in 1996 and moved to the Senate in 2002. Oregon’s budget gap for FY 2010 was 18 percent of its general fund budget.

Senator Denise Ducheny, Democrat, California. A former member of the California Assembly, Ducheny has served in the Senate since 2002. She chairs the Senate Budget and Fiscal Review Committee and the Joint Legislative Budget Committee. California’s FY 2010 budget gap was 35 percent of its general fund budget.

Senator Dan Kelly, Republican, Kentucky. Kelly is the majority floor leader of the Kentucky Senate. He previously served for five years as minority leader. He is a member of the Appropriations and Revenue Committee and is vice chair of the Committee on Committees. Kentucky’s FY 2010 budget gap was 18 percent of its general fund budget.

Fred Lewis, West Virginia. Lewis is a policy analyst for the Finance Committee of the West Virginia House of Delegates. West Virginia’s FY 2010 budget gap was 4.5 percent of its general fund budget.

Senator Tom Niehaus, president pro tem, Republican, Ohio. Niehaus formerly was majority leader in the Ohio Senate. Ohio’s budget gap for FY 2010 was 4.8 percent of its general fund budget.

Speaker Hannah Pingree, Maine, Democrat. Pingree is in her fourth term in the Maine House and previously served as its majority leader. Maine’s budget gap for FY 2010 was 18.8 percent of its general fund budget.

Senator Charlie Shields, president pro tem, Missouri, Republican. Shields had 12 years of experience in the Missouri House before moving to the Senate in 2002. He previously served as Senate majority leader. Missouri’s FY 2010 budget gap was 5.3 percent of its general fund.

Representative Curtis Thomas, Pennsylvania, Democrat. A member of the Pennsylvania General Assembly since 1989, Thomas chairs the House Intergovernmental Affairs Committee. Pennsylvania’s budget gap for FY 2010 was 13.5 percent of its general fund budget.

James White, Tennessee. White is the executive director the Tennessee legislature’s Fiscal Review Committee. Tennessee’s FY 2010 budget gap was 11 percent of the state’s general fund budget.

Carl Tubbesing is the deputy executive director of NCSL. Jeff Hurley tracks federal fiscal and other issues in NCSL’s Washington office.