Failing to Extend Federal Recovery Funding will Cost Jobs

Federal fiscal relief to states is set to expire at the end of 2010, but state fiscal shortfalls (including Washington State's) are expected to last into 2012 or longer. A new round of fiscal relief could help offset the damaging cuts proposed in the Governor's recent budget and provide a boost to the recovery. In order to be of use to Washington State, Congress must act soon so these funds can be included in the budget process.

In Washington State, there has been record drops in state revenue at the same time as dramatic increases in the need for public structures that provide health care, economic security, and job retraining. We are not alone. At least 38 other states have mid-year deficits that have opened up after balancing their budgets earlier this year (more detail). The actions that states must take to close these deficits could cost the economy as many as 900,000 jobs.

In the last round of deficit-closing, most states including Washington State relied heavily on federal fiscal relief. These funds helped stave off even deeper cuts in health care and education and provided a boost to the economy. The graph below shows how much of the total state fiscal gap was closed through federal recovery funds. It also shows how deficits continue into fiscal year 2012, after the federal relief has ended.

The Final Budget Cuts, Part Two: Education and Opportunity

Broadly available education and opportunity is fundamental to the future of our state. Education opens doors to better job opportunities, higher wages, and greater job security. Success in today’s competitive, knowledge-based economy will require more than a basic education. Our children need schools that provide sophisticated, high-quality learning environments so they can graduate with the skills and knowledge to succeed in the global marketplace.

This year's budget process resulted in significant budget cuts in education, as shown in the table below (click on it to see a larger version).


In K-12 education, the largest cuts were to two voter-approved initiatives (I-728 and I-732). I-728 called for funding to school districts for specific quality improvements such as class size reduction, extended learning, early learning, or professional development. I-732 called for a cost of living adjustment for education professionals. This cut will diminish the state's ability to attract and retain high quality teachers, a proven factor in improving student performance in school. A number of other education reform efforts were also suspended, eliminated, or reduced.

Higher education will also suffer under the new budget. Despite federal stimulus efforts, community and technical colleges will have $226 million less in state support during a time when the need for workforce training is growing dramatically. In addition, the university system will receive $384 million less in state support. Tuition will rise and services will be cut as a result.

These cuts will harm the long-term economic competitiveness of our state as well as the availability of quality education for all of Washington's students.

* Note: Federal stimulus funds not directly affecting the near-general fund balance are not included.

The State Budget and Federal Recovery Funds

This post contains corrected numbers.

Deep cuts in state budgets during a recession can have a significant harmful impact on the economy. In recognition of this fact, the federal government passed the American Recovery and Reinvestment Act of 2009 (ARRA), which includes significant fiscal aid to Washington State.

The recently enacted state budget relies heavily on ARRA funding to partially offset the effects of cuts in health care, education, public safety, and economic security.*

Health care**
The largest component of federal stimulus funding is an increase in federal funding for Medicaid, the primary source of public health insurance for lower income families. The increased federal contribution allows lawmakers to cut state spending on health care without reducing total funding for the program. Washington State is expected to receive $1.8 billion in Medicaid funding from ARRA.

However, the state budget does not take full advantage of ARRA funding for Medicaid because it cuts too deeply. Examples of cuts that cause a loss of federal money include:

• A $33 million cut in reimbursements for providers of Medicaid and SCHIP managed care services will result in a loss of $44 million in federal money, more than doubling the total size of the cut.
• A $38 million cut in nursing home rates results in a loss of $56 million in federal funds.
  
• An $18 million cut in reimbursements for pediatric services results in a $25 million loss in federal funds.

Education
Another component of ARRA is the State Fiscal Stabilization Fund, which provides flexible funding for education and other programs. In education, this fund is being used to partially offset devastating cuts in three areas:

• $176 million for levy equalization, which assists property-poor school districts that have difficulty raising sufficient property taxes to fund local schools.
• $562 million for a voter-approved (I-728) initiative that provides funding to school districts for quality improvements such as class size reduction, extended learning, early learning, or professional development.
• $81 million for higher education institutions.

Public Safety
The remainder of the State Fiscal Stabilization Fund ($182 million) is appropriated to the Department of Corrections to offset cuts in public safety and rehabilitation programs.

Economic Security
ARRA also expands federal support for the state’s WorkFirst program, which provides temporary assistance to families with very low incomes. During the recession, the need for WorkFirst has grown significantly. TANF contingency funds ($193 million) is intended to help pay for the increased need. Another $12 million is made available to assist in the state’s child support collection program.

* ARRA also included significant fiscal relief that does not directly impact the near-general fund budget.
** Separately from ARRA, Washington State will benefit from the reauthorization of the State Children’s Health Insurance Program, which enhances federal support of state efforts to insure lower income children.

Closing the Deficit: An Unbalanced Approach

This afternoon, the Governor will take action on an operating budget that must close an $8 billion deficit, likely the largest in state history. Rather than take an approach that balances raising revenue and reducing spending, the budget passed by the Legislature relies heavily on deep budget cuts in education, health care, economic security, public safety, and the environment.

The graph below shows how the Legislature’s budget closes the three-year deficit. (The numbers may differ slightly once the Governor exercises her veto power.)

• Budget cuts: The budget makes a total of $6.7 billion in near-general fund cuts. We'll be providing more detail on these budgets cuts later in the week. Federal stimulus funds offset $3 billion of these cuts, however this number is somewhat misleading because other spending cuts reduce the federal funds the state is entitled to receive.


• Revenue: Actions on revenue are expected to raise a net $242 million. These include restructuring the resale certificate program, opening nine liquor stores on Sunday, and opening liquor stores in malls during the holiday season.


• Rainy Day Fund: $445 million is transferred from the Rainy Day Fund, leaving a balance in that account of $250 million.


• Capital budget resources: The budget uses $777 million of funds that are typically appropriated in the capital budget.


• Other transfers and changes: An additional $389 million in funds is accessed by transferring money from other accounts and making other marginal changes.


• Ending balance: These actions leave an estimated $573 million in an unrestricted balance, although recent revenue collections suggest the ending balance could actually be lower.

Series on the State Budget Crisis: Part Three, States Raise Taxes

States are struggling to balance their budgets during the current economic recession. As we discussed in yesterday's post, many have opted to cut spending as a result. But given the sheer size of state budget shortfalls, cuts alone will not be enough to solve the problem without long term harm to essential public services.

According to a new report from the Center on Budget and Policy Priorities, instead of a cuts-only approach, states are increasingly employing a combination of budget solutions that involves drawing down reserve funds, maximizing the use of federal dollars, and raising taxes.

As the map below shows, so far in 2009 sixteen states have raised new revenue through tax measures. Another 17 are giving serious consideration to doing so. These initiatives are in addition to revenue actions taken in states in late 2007 and 2008 as the recession’s effects began to be felt.


In addition, the report finds that states that raised taxes during the 2001 recession were just as fast to rebound from the recession as states that did not, even though they were typically climbing out of a deeper hole.

Series on the State Budget Crisis: Part Two, Cuts to Vital Programs

As we mentioned in yesterday's post, almost every state in the nation is facing budget deficits because of the weakened economy. The federal American Recovery and Reinvestment Act includes roughly $140 billion in fiscal relief for state governments. But the recovery act funding will only be enough to fill about 40 percent of the $350 billion to $370 billion shortfall that states will face in the next two-and-a-half years.

According to a new report from the Center on Budget and Policy Priorities, at least 36 states have addressed their shortfalls by cutting spending. As the report notes, cuts in state budgets worsen the recession by reducing overall economic activity. Reductions in state spending translate into fewer state jobs, canceled contracts with vendors, lower payments to businesses and nonprofits that provide services, and cuts in benefit payments to individuals.

Importantly, cuts in state spending also particularly hurt the most vulnerable residents in the state. The report outlines five areas in which states have made cuts. Washington State has made cuts in all of these areas.

• Public health programs: At least 19 states have implemented cuts that will affect low-income children’s or families’ eligibility for health insurance or reduce their access to health care services.


• Programs for the elderly and disabled: At least 21 states plus the District of Columbia are cutting medical, rehabilitative, home care, or other services needed by low-income people who are elderly or have disabilities, or significantly increasing the cost of these services.


• K-12 education: At least 22 states are cutting K-12 and early education.


• Colleges and universities: At least 30 states have implemented cuts to public colleges and universities, resulting in cuts in faculty and staff and tuition increases of 4 percent to 15 percent.


• State workforces: At least 39 states and the District of Columbia have made cuts affecting their state workforces. At least 27 states and the District of Columbia have instituted hiring freezes, 10 have announced lay-offs, 15 have reduced state worker wages, and several have delayed scheduled pay increases (including cost of living adjustments).

Click on the chart to see a state-by-state view of cuts in these budget areas.


Tomorrow we will post on states that have raised taxes to help close budget deficits during the current recession.

Washington TANF Caseload Increases Match State Forecasts

Temporary Assistance to Needy Families (TANF) caseloads have risen sharply in Washington over the last year. Since April 2008, total TANF caseloads in the state went up by 9,000. The increase to over 60,000 cases in April this year can be attributed both to rising numbers of people entering the program and decreasing numbers of people exiting.

Back in November, the Caseload Forecast Council predicted that TANF caseloads would remain under 60,000 through 2011. In March, the Council recalibrated its forecasting to include more recent economic trends and projections such as rising unemployment.

As the graph below depicts, the new forecasting seems to be working. In March, the Council predicted TANF caseloads would be 61,550 in April and the total caseloads were actually 60,809. Currently, the state predicts that TANF caseloads will rise by 13 percent this year and 11 percent in 2010. Caseloads are projected to decrease by less than one percent in 2011.


Washington is applying for the maximum allotment from TANF contingency funds, including funds from the federal stimulus bill to support increasing caseloads and other TANF efforts at the state level. The total amount for fiscal years 2009 and 2010 will be $190 million. All the funds received will be used to backfill rising caseload costs and help preserve basic services.

Note: TANF caseloads are affected by seasonal employment patterns. They tend to rise during the fall and winter and fall during spring and summer.

Impact of Recovery Act in Washington: Making Work Pay Credit and Unemployment Benefits

Last week I wrote a post on the increase in food stamp benefits slated for April 1, and the likely impact on our state’s economy. Two other important components of the federal recovery package are also kicking in today, the Making Work Pay Credit and an increase in unemployment benefits for eligible workers.

The Making Work Pay Credit
This is a tax credit worth up to $400 for a worker and $800 for a married couple. In most cases, the credit will be administered by employers and will reduce the amount withheld from an employees’ paycheck, increasing their take-home pay. It is available to all workers earning up to $95,000 and all married couples earning up to $190,000. In Washington State, an estimated 2,360,000 workers are eligible for the credit.

Increase in Unemployment Benefits
The economic recovery package also gives unemployed workers an extra $25 a week and extends the number of weeks they can receive jobless benefits. The National Employment Law Project estimates that more than 400,000 unemployed workers in Washington will receive the increase in benefits.

Much like food stamps, unemployment benefits are a proven form of economic stimulus. According to the U.S. Labor Department, one dollar in unemployment benefits generates $2.15 in economic activity.

Senate Budget Does Not Take Full Advantage of Federal Funds

The Senate budget contains $2.7 billion in cuts for the Department of Social and Health Services, the primary agency responsible for health care and economic security programs in the state. These cuts are partially replaced by new federal funding. However, the Senate proposal cuts too deeply, resulting in a budget that does not fully take advantage of federal funds.

In order to keep from losing available federal recovery funds, the state must avoid deep cuts such as these by raising new revenue.


Federal increases
Of the $2.7 billion in cuts, only 63 percent is offset by increases in federal funding. This includes an increase in the federal government's share of Medicaid spending, a boost in food assistance funding, and money available to pay for caseload increases in TANF.

Lost federal money
Federal recovery funds are contingent on continued state investments in these areas. Fully 25 percent of the cuts in DSHS are associated with loss of federal money. Many of these cuts are in the Medicaid program. Some examples:

• A $33 million cut in reimbursements for providers of Medicaid and SCHIP managed care services will result in a loss of $44 million in federal money, more than doubling the total size of the cut.
• A $46 million cut in reimbursements for inpatient hospital stays results in a loss of $61 million in federal money.
• A $38 million cut in nursing home rates results in a loss of $56 million in federal funds.
  
• A $18 million cut in reimbursements for pediatric services results in a $25 million loss in federal funds.
  

Other cuts not replaced by federal funding
Aside from those mentioned above, there are $311 million cuts in funding for health care and economic security programs that will not be replaced by federal dollars and are therefore real cuts that affect the health and economic security of Washingtonians. The largest include severe restrictions on GA-U eligibility and reductions in mental health services.*

* A $69 million cut in TANF is listed in the LEAP documents as not having a direct federal impact. However, this may not fully account for limitations on federal TANF money. We'll update this as we find out more.

Source: fiscal.wa.gov

Food Stamp Increase Provides Boost to Washington Families and Economy

Almost 700,000 Washingtonians – mostly families with children – will get an increase in their food stamp benefits starting April 1. The increase, a key component of the American Recovery and Reinvestment Act signed into law by President Obama, will give most families an extra $20-$24 per person per month to help meet basic needs.

The increase will also help Washington’s struggling economy. Food stamps are considered to be one of the most effective means for economic stimulus because lower-income people are much more likely to spend their available resources right away. The U.S. Department of Agriculture estimates that every $1 in food stamps expands the economy by $1.84.

In Washington, roughly $90 million in additional food stamps will flow into the state between April and September of this year. This will generate an estimated $170 million in total economic stimulus during that time.*

*Source: Analysis by the Center on Budget and Policy Priorities.

"A Shared Vision" Part Four: Economic Security

This post is the final installment in our four-part series on a shared vision for Washington State. The series is based on the Progress Index, a framework for analyzing the state budget that was developed by the Budget & Policy Center. The Progress Index utilizes four commonly-held values: education and opportunity, thriving communities, healthy people and environment, and economic security. Last week, I wrote about healthy people and environment.

State investments in economic security ensure that people can survive difficult financial times and take steps to improve their quality of life. Families succeed when parents are secure in their ability to provide basic necessities for their children. Workers prosper when workplaces are safe and financial protections exist in cases of injury or job loss. And everyone in state benefits when people can meet their basic needs and find meaningful employment.

Even in times of prosperity, we all face the risk of job loss, disability, or family crisis. When the economy is strained, public investments in economic security matter even more. State spending on economic security fell as a share of personal income in each biennium from 1995-97 to 2005-07. Funding increased in the 2007-09 budget due to increased reimbursement rates for child care centers and a new collective agreement with family child care providers. (See graph)


As the unemployment rate rises in Washington State due to the current economic crisis, unemployment insurance benefits play an increasingly important role in shoring up economic security in the state. Two recent stimulus efforts are directed at this benefit: the federal stimulus bill which passed last month, increases the weekly benefit amount by $25 for most claimants. The state also enacted new legislation in February increasing the weekly benefit amount by $45 and raising the weekly minimum amount for many claimants.

The combined impact will be an additional $70 per week for recipients and $480 million of additional money circulating through the state economy. Economists calculate that for every dollar of unemployment insurance issued, there is $1.64 generated in spending.

Safe and affordable housing is also an important component of economic security. Stable housing is a key variable to getting jobs, educational attainment, and health care. Research shows that quick rehousing plus supportive services can have a long-term impact on homelessness. But affordable housing is not readily available to many people living in Washington State: three-fourths of renters with incomes under $35,000 per year were paying more than 30 percent of their income in rent in 2007.

Finally, financial asset development is an important way for people with lower incomes to work towards improving their quality of life. Washington encourages lower income families to build assets through the state's Individual Development Accounts program. IDAs match the savings of lower income families to help build assets that can be used to start a business, buy a home, or pay for college.

But in other instances, the state inadvertently discourages asset building by limiting access to temporary cash benefits (TANF) based on assets the family possesses, such as a retirement account or a car used to commute to work or school. This system works against shared goals. Public programs should help people meet temporary needs without requiring them to deplete modest savings.

This post concludes our series on a shared vision for Washington State. The Budget & Policy Center will continue to use the framework outlined in the Progress Index to evaluate the state budget and analyze our long-term progress toward meeting research-based goals.

Federal Stimulus Supports Washington's TANF program

The recent federal stimulus package offers states significant financial support for increased investments in economic security for vulnerable families. The American Recovery and Reinvestment Act of 2009 contains provisions for an emergency contingency fund within the Temporary Assistance to Needy Families (TANF) program. TANF is the federal program that supports state welfare programs, which in Washington is known as WorkFirst.

The new federal provisions:
- provide significant, unanticipated money to the state for TANF
- require that states experience increases in TANF caseloads and expenditures to access federal money

While the TANF block grant generally provides states with a fixed amount of money each year, the new emergency fund offers additional money to states that corresponds to increased TANF costs during the recession. The new provisions in the federal legislation are intended to help states respond to the rising need for government assistance during an economic crisis. They provide a very attractive 80 percent reimbursement for the increased costs associated with rising caseloads and innovative programs designed to assist families. (This means that for every 20 cents the state spends, it gets back 80 cents in federal assistance. In dollar terms, for every one dollar spent, Washington would receive four dollars back.)

Washington State stands to gain unanticipated extra federal dollars under this provision, but to take advantage of these funds lawmakers must resist the temptation to cut caseloads or benefits in order to deal with budget shortfalls. A state can only receive the new emergency funds for increased assistance costs if it has increased caseloads and expenditures. In other words, the program must be serving more people now than it did in 2007 - when the average monthly caseload was over 51,000 - and it is projected to do so. The Caseload Forecast Council predicted last November that the state will have close to 59,000 TANF recipients in 2011, a 14.5 percent increase over the June 2008 projection. (See graph) It is highly likely, given the escalating crisis in the economy and unemployment, that these regular assistance caseload numbers will be much higher.


Increased caseloads in Washington State will come primarily from the rising need of vulnerable families during the current economic recession. But additional caseload growth in Washington will also come from the Career Services program that the state recently created to support families trying to work their way off assistance. The state has been planning to expand this program later this year to include working families receiving food stamps. Because expenditures on this program qualify for the 80 percent reimbursement, Washington State is well-positioned to pull in extra federal dollars through the emergency fund for previously scheduled expenditures.

As state lawmakers move forward in the budget-writing process, it is important to consider that reductions in TANF benefits for basic assistance or steps taken to reduce caseloads will mean Washington will lose out on 80 cents in additional federal funding for every dollar that gets cut. Not only would this do harm to our collective effort to provide economic security to everyone in the state, it would also run counter to the purpose of the federal stimulus bill which seeks to increase spending in the overall economy. According to the Center on Budget and Policy Priorities, a Washington D.C.-based think tank, every federal dollar pulled into the state is expected to generate $1.38 in economic activity.

For more information on the TANF provisions in the federal stimulus bill, see this paper from the CBPP. Many thanks to Liz Schott at CBPP for her assistance with this post.