Aid helps states escape layoffs, but for how long?

[August 14, 2010]  NEW YORK (AP) -- Cash-strapped states from Maine to Hawaii are tearing up the pink slips -- for now -- relieved that the $26 billion state aid bill passed by Congress this week has saved hundreds of thousands of jobs. But it might be the last time the federal government comes to the rescue.

The legislation is a stopgap for long-term budget problems, letting states put off hard choices at a time of record federal deficits. While appetite for such cash infusions is wearing thin, some analysts say the latest package is essential to preserving the fragile economic recovery.

"What states are experiencing is the largest drop-off of revenues they've ever faced, so to suggest they shouldn't get help overlooks the magnitude of the problem," said Jon Shure of the Center on Budget and Policy Priorities, a Washington think tank. "State and local government is a huge driver of the economy, especially when the private sector is faltering. The last thing this economy needs is people not working."

The latest federal aid package, signed Tuesday by President Obama, was designed to prevent widespread layoffs of teachers and other public employees and to help states pay their share of Medicaid, the public health program for the poor. Medicaid costs have soared during the recession, eating up a larger portion of state budgets each year.

The legislation provides $10 billion to school districts to rehire laid-off teachers or to ensure that more teachers won't be let go before the new school year begins. An additional $16 billion would extend for six months increased Medicaid payments to the states, freeing up money for other state programs. The bill is expected to protect 300,000 jobs, just over half of them teaching positions.

In Colorado, the bill is expected to save 2,700 teaching jobs. About 1,400 teachers in Nevada will avoid pink slips, as will 1,800 in Iowa. In California, where 16,500 teaching jobs were saved from the chopping block, top education official Jack O'Connell called the federal help "an urgently needed Marshall Plan" for his state's hard-hit schools.

The money is a relief to officials in states that had crafted their budgets assuming they would receive the additional funds, while those who hadn't counted on the cash infusion cheered an unexpected windfall they hoped to use to plug future budget holes. The fiscal year began July 1 in all but a handful of states.

"We didn't depend on this money going in. It certainly will help next year," said Delaware state Sen. Nancy Cook, the budget committee co-chair.

In Massachusetts, lawmakers drafted two versions of the state budget -- one including the federal help and one that did not. With time running out, Democratic Gov. Deval Patrick signed the budget that did not include the additional aid, resulting in $455 million in cuts to state programs, including $200 million to education.

With the new aid package sending $655 million to the state, Patrick said he hoped to restore some of the cut funding. "This is smart and compassionate economic policy," he said of the federal help.

Not all state officials are happy about the legislation. Some Republican governors have been reluctant to accept the money because of federal strings attached.

Mississippi Gov. Haley Barbour said his state would have to rewrite its budget to qualify for an additional $98 million in federal aid. Texas Gov. Rick Perry threatened a lawsuit over a state-specific provision in the legislation requiring Texas to use the money for education and not divert it to other programs.

"Texas will not surrender to Washington's one-size-fits-all, deficit spending mindset," Perry said in a statement, vowing to work with state lawmakers to "fight the injustice."

In New Jersey, a spokesman for Republican Gov. Chris Christie said Christie would accept the federal money but insist on retaining control over how it is spent.

"The governor will apply for the education funding ... in order to ensure it is managed and distributed to local school districts by the state of New Jersey and not the federal government," Christie spokesman Michael Drewniak said.

Some critics derided the bill as little more than a shakedown by teachers' unions, which typically provide significant political help to Democrats.

"The new package, including funds that must be spent to rehire teachers or sustain payrolls, is an enormous gift by Democrats to their public employee union allies," said E.J. McMahon of the Empire Center for New York State Policy, a conservative research group.

Others, both inside and outside government, argue that the federal assistance gets states off the hook for making necessary reforms.

University of Rhode Island economics professor Leonard Lardaro said his state must fix its regressive tax laws and consolidate school districts to save money. The federal assistance lets lawmakers avoid tackling those problems, he said.

"The stimulus money, by allowing us to get by for now, takes some of the urgency of consolidation off the table," Lardaro said.

Some officials cited a more practical concern -- the teachers whose jobs were saved this time will likely be laid off next year, when the federal help runs out.

"There's only one thing worse and harder than cutting staff positions, and that's adding them back and then cutting them again," said Randy Schild, superintendent of the Tillamook school district in Oregon.

But Wisconsin Democratic Gov. Jim Doyle, who welcomed the stimulus money to his state, said such arguments didn't make sense in light of the urgent needs states and residents have right now.

"We cannot ask a second-grader to come back and complete their studies five years from now when the economy has turned around," Doyle said in a statement. "The education we provide now will be the strength of our state and nation for decades to come."

[Associated Press; By BETH FOUHY]

Associated Press writers Steve Paulson in Denver; Sandra Chereb in Carson City, Nev.; Mike Glover in Des Moines; Juliet Williams in Sacramento, Calif.; Randall Chase in Dover, Del.; Steve LeBlanc in Boston; April Castro in Austin, Texas; Beth DeFalco in Trenton, N.J.; Michael Gormley in Albany, N.Y.; Michelle R. Smith in Providence, R.I.; Tim Fought in Salem, Ore; and Scott Bauer in Madison, Wis., contributed to this story.

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