Nov/Dec 2009

State News: August 2009



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States Plug Budget Holes with Stimulus

By Mary Branham, CSG Managing Editor
States are spending more than half of their flexible spending dollars from the American Recovery and Reinvestment Act to address shortfalls in state budgets.
A Council of State Governments’ analysis of states’ plans for $8.8 billion in the Government Services Fund of the Recovery Act shows that states are using the lion’s share of the money to fill gaps in public safety budgets and also to address shortfalls in the face of falling state revenues, according to the states’ applications for the funds.
“The Recovery Act has already saved thousands of jobs by softening the blow of a historic state budget crisis. The flexible funds now arriving will allow many states to fund innovative programs to address mortgage relief, economic development and other critical needs,” said Chris Whatley, director of CSG’s Washington, D.C., office, which analyzed the plans.
The Government Services funds in the State Fiscal Stabilization Fund made available in the Recovery Act can be used for education purposes as well as other services such as public safety and health care, according to the U.S. Department of Education, and each state’s governor is in charge of determining how those funds will be used. States were required to disclose the intended use of the funds in applications for the funding.
According to CSG’s analysis of those applications, states will use 28.62 percent of the Government Services Fund to address gaps in their public safety budgets. States’ plans for the money also indicate slightly more than 21 percent of the funds—the next biggest category—are for an “undetermined” purpose, a category listed on the applications for the funds. But the CSG report assumes those undetermined funds will be used to address budget shortfalls given state revenue forecasts. Twenty-seven states dedicated a portion of their funds into an “other” category, according to CSG’s analysis.
Highlights of the CSG report include:
  • More than 27 percent of the funds will be used to provide additional funding for K-12 and higher education, both operations and capital costs;
  • More than 10 percent of the funds will be devoted to economic development, including additional transportation spending, innovation/technology programs, and other economic development initiatives;
  • Roughly 9 percent of the funds will be used to provide additional public assistance, including mortgage relief, health care spending, and other social service programs; and
  • More than 15 percent of the funds are dedicated to Recovery Act administration costs.
Different regions of the country focus on different priorities for the stabilization funds, according to the CSG analysis.
The West, for instance, allocated nearly 60 percent of the General Services Fund in the “other” or “undetermined” categories, while spending much less than the national average for education at all levels. Western states allocated more than 6 percent for elementary and secondary education, and more than 7 percent for higher education, but budgeted nothing for modernization of public school or university facilities.
In the East, states allocated more than the national average for elementary education—slightly more than 22 percent—but substantially less than the average for higher education. Those states included less than one-half of 1 percent for higher education, and nothing for modernization of facilities. Eastern states are spending more than three times more—at slightly more than 10 percent—than the 2.62 national average for Medicaid programs.
Midwestern states are spending slightly more than the national average for K-12 education, nearly 16 percent, but slightly less on public school facilities, at less than one-half of 1 percent. Those states are investing more in higher education—nearly 12 percent of their funds, compared to nearly 8 percent nationwide, will go to those institutions. But while the rest of the country is averaging about 2.6 percent on modernization of higher education facilities, Midwestern states will spend more than 8 percent of their funds for that purpose.
Southern states plan to spend slightly more than the national average on institutions of higher education, nearly 11 percent compared to nearly 8 percent, and on modernization, renovation or repair of public school facilities, slightly more than 2 percent compared to less than 1 percent. The South, like the Midwest, plans to spend more than the national average on public safety budgets.
CSG’s Washington office released a preliminary analysis on how states plan to use this new flexible funding. This report provides a full list of the priorities submitted by the 50 states plus Puerto Rico and Washington, D.C. To date, 42 applications have been approved by the federal government.
The $8.8 billion is just part of nearly $54 billion State Fiscal Stabilization Fund. These flexible funds from the American Recovery and Reinvestment Act of 2009 include $39.5 billion to stabilize state education budgets and prevent teacher layoffs. There’s also $5 billion for incentive grants to promote innovation and education reform.

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