Federal aid to the states won’t solve state budget crises

There are some very large dollar numbers circulating as to how much North Carolina’s state budget stands to benefit from the federal economic recovery package moving through Congress. A new report released yesterday from the Center on Budget and Policy Priorities details why this infusion of federal funds is likely to fill less of states’ budget gaps than it appears at first glance. The report concludes that currrent estimates of federal aid to the state’s will fill approximately 40 to 45 percent of the cummulative state budget gaps.

Keep in mind these things two things about potential federal help:
1) It’s all non-recurring money: it will last 18-months to two years in some cases and then it drops to zilch. And there’s no reason so suspect that NC’s revenues will be growing anywhere near the rate needed to offset the loss of federal funds when that happens.
2) Not all of the funds can be used to fill the budget gap. A certain portion of the Medicaid help will have to go to pay for the increasing number of residents that will be eligible for these services. Other pots of money, such as the funds for child care assistance, will not be allowed to supplant current funding designated for that purposes. That’s good in that it will require the state to reduce the waiting list for these services but it also means that those funds cannot fill the state’s budget hole.

It’s appropriate to be grateful that the federal government, for the first time in a long-time, is playing an active role in addressing the nation’s economic and fiscal challenges. That said, the Fed’s number one goal is to stimulate the economy not to solve our state’s budget woes. It pays (pun intended) for our state’s leaders to keep that in mind as they decide how to address the state’s large and growing budget gap.