An independent study of a $140 billion American Recovery and Reinvestment Act (ARRA) funding stream to help states close critical budget gaps shows that the ARRA money is providing the relief that it was intended.
\r\nThe Center on Budget and Policy Priorities (CBPP) looked at two states—New York and Virginia—and evaluated how the ARRA funding was helping prop up state budgets. If the two states are any measure, the ARRA funding is enabling states to balance their budgets with fewer cuts in public services that would harm residents and further slow the economy.
\r\nThe CBPP study showed that the federal aid is enough to close roughly 30-40 percent of state budget shortfalls. The $787 billion included approximately $135 billion to $140 billion for states to maintain current programs, which are being squeezed between rising demand for services and sharply declining tax revenues. These ARRA dollars closed 31% of New York's budget gap and 37% of Virginia's. (Other states, such as Utah, Washington, Georgia, and Maryland, report similar outcomes.)
\r\nStates are closing the remaining gaps with a mix of spending cuts, revenue increases, withdrawals from reserve funds, and other measures.
\r\nThe federal aid is arriving at a crucial time; New York and Virginia were seriously considering severe cuts in services like health care, education, and public safety and very likely would have enacted those cuts in the absence of the federal aid.
\r\nVirginia
\r\nVirginia is using the fiscal assistance to keep open three facilities serving persons with mental health needs, reverse a planned cut in Medicaid payments to hospitals, lessen a reduction in aid to universities that almost certainly would have led to large tuition increases, avoid a major education budget cut, and avoid a funding cut that would have resulted in the loss of an estimated 310 deputy sheriffs' positions. The governor had proposed these cuts before the federal funds became available.
\r\nNew York
\r\nNew York is using recovery-act assistance to sustain state-funded pharmaceutical coverage for seniors on fixed incomes; maintain aid to hospitals and nursing homes; avert a proposed reduction in payments to low-income residents who are elderly, blind, or have disabilities; undo a proposed $1.1 billion cut in K-12 funding; reduce a proposed funding cut for community colleges; maintain programs that provide professional development for teachers; and avoid cuts in college tuition assistance for low- and moderate-income students.
\r\nThe aid also allowed New York to avoid shifting special education costs to local school districts, which would have had to cut services or raise property taxes more than they already are. As in Virginia, all of these cuts had been proposed by the governor prior to ARRA.
\r\nIn both states, the governor's proposed spending reductions prior to ARRA would have been insufficient to balance the budget as the revenue situation worsened.
\r\n"Just a few months after enactment of the American Recovery and Reinvestment Act, federal fiscal assistance for state governments has begun to have its intended impacts," the report said. "It has enabled states to close their large budget shortfalls with smaller cuts in education, health care, and other important services than would have occurred had the federal government not provided this assistance."
\r\nInfo: www.cbpp.org/cms/index.cfm?fa=view&id=2831
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