States escape layoffs, but for how long?

August 14, 2010 at 12:00a.m.

Associated Press

NEW YORK

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. Though 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 Barack 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 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, and 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-chairwoman.

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

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