Uniqueness Extn – Budget Tight

States facing a budget shortfall

An analysis completed by the Government Accountability Office in 2004 found that “state and local governments have used roughly half of the increases in federal highway grants since 1982 to substitute for funding they would otherwise have spent from their own resources. In addition, our model estimated that the rate of grant substitution increased significantly over the past two decades, rising from about 18 cents on the dollar during the early 1980s to roughly 60 cents on the dollar during the 1990s.”111 Because state revenue growth has declined in recent years, it could be argued that states facing a budgetary shortfall are not likely to substitute federal funds received from the economic recovery plan for existing state funds. Instead, it could be argued that at least some states, particularly those facing budgetary shortfalls, might have a difficult time finding state revenue to maintain their previous spending levels. In either case, state MOE requirements may become an issue during SAFETEA’s reauthorization and will be the subject of congressional interest and oversight during the implementation of the American Recovery and Reinvestment Act of 2009.

Link Extn – States No $

Mass transit programs are losing State and Local funding because States can’t afford it

Gordon, 11 – Economic Analyst at Charles River Associates (Michael, “Funding Urban Mass Transit in the United States”, Boston College Economics Honor’s Thesis, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2007981, p. 12, 3-23-11)//AWV

Federal funds also often require agencies to spend on specific items. For example, ARRA funds capital improvements, even though many systems cannot cover their operating costs. This is especially true during the recent recession – many agencies have cut service, laid off employees, and raised fares in an attempt to cover operating costs. It may make more sense in these cases for government subsidization to target operating losses instead of capital improvements.22 However, funding does not appear to be increasing in the wake of the recession. Only 10% of public transportation agencies expected an increase in local/regional funding in 2010, while 66% expected a decrease. Meanwhile, only 11% expected an increase in state funding while 56% expected a decrease.23 As a result, 69% of urban transit agencies expected budget shortfalls in 2011, indicating that these systems do not expect the current combinations of funding to adequately cover their costs.24

Impact Extn – State $ kills Econ

States will have to cut overall spending and it will collapse the economy

McNichol, 12 - Senior Fellow specializing in state fiscal issues including the economy’s impact on state budgets and long-term structural reform of state budget and tax systems at the Center for Budget and Policy Priorities (Elizabeth, “States Continue to Feel Recession’s Impact,” 5/24,

http://www.cbpp.org/cms/index.cfm?fa=view&id=711)

The Consequences of Shortfalls

In states facing budget gaps, the consequences are severe in many cases — for residents as well as the economy.  To date, budget difficulties have led at least 46 states to reduce services for their residents, including some of their most vulnerable families and individuals.[4]  More than 30 states have raised taxes to at least some degree, in some cases quite significantly. If revenues remain depressed, as is expected in many states, additional spending and service cuts are likely.  Indeed, a number of states have already made substantial cuts to balance their budgets for fiscal year 2013.  Budget cuts often are more severe later in a state fiscal crisis, after largely depleted reserves are no longer an option for closing deficits.[5]   Spending cuts are problematic during an economic downturn because they reduce overall demand and can make the downturn deeper.  When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services, and cut benefit payments to individuals.  In all of these circumstances, the companies and organizations that would have received government payments have less money to spend on salaries and supplies, and individuals who would have received salaries or benefits have less money for consumption.  This directly removes demand from the economy.  Tax increases also remove demand from the economy by reducing the amount of money people have to spend.  However, to the extent these increases are on upper-income residents, that effect is minimized.  This is because these residents tend to save a larger share of their income, and thus much of the money generated by a tax increase on upper income residents comes from savings and so does not diminish economic activity.  At the state level, a balanced approach to closing deficits — raising taxes along with enacting budget cuts — is needed to close state budget gaps in order to maintain important services while minimizing harmful effects on the economy. Ultimately, the actions needed to address state budget shortfalls place a considerable number of jobs at risk. The roughly $54 billion shortfall that states are facing for fiscal year 2013 equals about 0.35 percent of GDP.  Assuming that economic activity declines by one dollar for every dollar that states cut spending or raise taxes, and based on a rule of thumb that a one percentage point loss of GDP costs the economy 1 million jobs, the state shortfalls projected to date could prevent the creation of 350,000 public- and private-sector jobs next year.   The Role of the Federal Government Federal assistance lessened the extent to which states needed to take actions that further harmed the economy.  The American Recovery and Reinvestment Act (ARRA), enacted in February 2009, included substantial assistance for states.  The amount in ARRA to help states maintain current activities was about $135 billion to $140 billion over a roughly 2½-year period — or between 30 percent and 40 percent of projected state shortfalls for fiscal years 2009, 2010, and 2011.  Most of this money was in the form of increased Medicaid funding and a "State Fiscal Stabilization Fund."  (There were also other streams of funding in the Recovery Act flowing through states to local governments or individuals, but these will not address state budget shortfalls.)  This money reduced the extent of state spending cuts and state tax and fee increases.  In addition, H.R. 1586 — the August 2010 jobs bill — extended enhanced Medicaid funding for six months, through June 2011, and added $10 billion to the State Fiscal Stabilization Fund.  Even with this extension, federal assistance largely ended before state budget gaps had fully abated.  The Medicaid funds expired in June 2011, the end of the 2011 fiscal year in most states,[6] and states had drawn down most of their State Fiscal Stabilization Fund allocations by then as well.  So even though significant budget gaps remained in 2012, there was little federal money available to close them.  Partially as a result, states' final 2012 budgets contain some of the deepest spending cuts since the start of the recession. One way to avert these kinds of cuts, as well as additional tax increases, would have been for the federal government to reduce state budget gaps by extending the Medicaid funds for as long as state fiscal conditions are expected to be problematic.  But far from extending this aid, federal policymakers are moving ahead with plans to cut ongoing federal funding for states and localities, thereby making state fiscal conditions even worse.  The federal government has already cut non-defense discretionary spending by nine percent in real terms since 2010. Discretionary spending caps established in the federal debt limit deal this past summer will result in an additional six percent cut by the end of the next decade. The additional cut by the end of the next decade would grow to 11 percent if sequestration — the automatic, across-the-board cuts also established in the debt limit deal — is allowed to take effect. Fully one-third of non-defense discretionary spending flows through state and local governments in the form of funding for education, health care, human services, law enforcement, infrastructure, and other services that states and localities administer.  Large cuts in federal funding to states and localities would worsen state budget problems, deepen the size of cuts in spending, increase state taxes and fees, and thus slow economic recovery even further than is already likely to occur.

State spending cuts or tax increases will cripple the economy

Mishel, 10 – president of the Economic Policy Institute (Lawrence, Congressional Documents and Publications, 1/21, Testimony before Senate Appropriations Subcommittee on Labor, Health, and Human Services, Education, and Related Agencies, lexis)

Second, Congress should provide more fiscal relief to the states. Helping state and local governments avoid job cuts is as effective as creating new jobs. Nothing is more clearly an obstacle to recovery than another round of public employee job losses and cutbacks in state spending on goods and services contracted out to the private sector. As Paul Krugman puts it so well, we cannot afford to have the states become 50 little Herbert Hoovers, cutting back spending and raising taxes as the economy struggles to recover. With budget gaps expected to exceed $450 billion in 2010 and 2011, the states and local governments need federal revenue sharing as never before. EPI researcher Ethan Pollack estimates that if Congress does not intervene, and state and local governments close their budget gaps by cutting spending, GDP growth will be reduced by about 4.5% over the next two years, at a cost of more than 3 million jobs.

State funding mechanisms collapse the economy, federal key

Lav and McNichol, 09 – *former deputy director at the Center for Budget and Policy Priorities AND **Senior fellow at the CBPP [Iris and Elizabeth McNichol, “New Fiscal Year Brings No Relief From Unprecedented State Budget Problems,” 8/12, http://governor.mt.gov/news/docs/Center_on_Budget_Policy.pdf)

Unlike the federal government, the vast majority of states are governed under rules that prohibit them from running a deficit or borrowing to cover their operating expenses. As a result, states have three primary actions they can take during a fiscal crisis: draw down available reserves, cut spending, and raise taxes. States already have begun drawing down reserves; the remaining reserves are not sufficient to allow states to weather the remainder of the recession. The other alternatives — spending cuts and tax increases — can further slow a state’s economy during a downturn, which produces a cumulative negative impact on national recovery as well. Some states have not been affected by the economic downturn, but the number is dwindling. Mineral-rich states — such as New Mexico, Alaska, and Montana — saw revenue growth as a result of high oil prices. However, the recent decline in oil prices has begun to affect revenues in some of these states. The economies of a handful of other states have so far been less affected by the national economic problems. In states facing budget gaps, the consequences are severe in many cases — for residents as well as the economy. As the 2009 fiscal year ended and states planned for 2010, budget difficulties have led some 39 states to reduce services to their residents, including some of their most vulnerable families and individuals.2 For example, at least 21 states have implemented cuts that will restrict low-income children’s or families’ eligibility for health insurance or reduce their access to health care services. Programs for the elderly and disabled are also being cut. At least 22 states and 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. At least 24 states are cutting or proposing to cut K-12 and early education; several of them are also reducing access to child care and early education, and at least 32 states have implemented cuts to public colleges and universities. In addition, at least 41 states and the District of Columbia have made cuts reducing the size or work time of state government employees. Such cuts not only often result in reduced access to services residents need, but also add to states’ woes because of the impact on the economy from less consumer activity. If revenue declines persist as expected in many states, additional spending and service cuts are likely. Budget cuts often are more severe later in a state fiscal crisis, after largely depleted reserves are no longer an option for closing deficits. Expenditure cuts and tax increases are problematic policies during an economic downturn because they reduce overall demand and can make the downturn deeper. When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services, and cut benefit payments to individuals. In all of these circumstances, the companies and organizations that would have received government payments have less money to spend on salaries and supplies, and individuals who would have received salaries or benefits have less money for consumption. This directly removes demand from the economy. Tax increases also remove demand from the economy by reducing the amount of money people have to spend — though to the extent these increases are on upper-income residents that effect is minimized because much of the money comes from savings and so does not diminish economic activity. The federal government — which can run deficits — can provide assistance to states and localities to avert these “pro-cyclical” actions.

Directory: files
files -> Answer True False 2 points Question 2
files -> Integer programming and game theory
files -> 4 Integer Programming
files -> Bpa vehicle Window Repair Scenario #1 task: Procure vehicle window relacement. Objective
files -> Pop Warner History
files -> North Carolina Inclusion Initiative Mapping Where Children with ieps are Being Served Purpose
files -> Fall 2013 Spring 2014 Program Data: Standard 1 Exhibit 4d
files -> Hanban – asia society confucius classrooms network 2010 request for proposal
files -> Northern England’s set-jetting locations

Download 0.91 Mb.

Share with your friends: