'stimulus' And The States

The states are now in a precarious position. The economy is slowing down. Tax revenues are falling. And demand for expensive services – health care,health club food assistance and the like – is growing.

A slowing economy is never easy. But this year, the states' fiscal crunch is being made worse. That's because misguided policies put in place by Congress and the Bush administration have either forced states to spend money or driven away tax revenue.

Before anyone in Washington seriously contemplates a second "stimulus package" aimed at reviving the economy, health club I would offer two succinct pieces of advice: First, take a Hippocratic Oath to do no harm to state budgets. Second, ensure that Washington "pays its bills," just as we require of everyone else.

Let's start with doing no harm. The plain fact is that the first stimulus package violated this principle, and will result in nearly $2 billion in revenue loss to states. State taxes are based on the amount of federal taxes individuals and businesses pay. So when the stimulus package cut federal business taxes, it also cut state taxes and thereby cost us revenue.

Fortunately, Congress is considering bipartisan legislation in both the House and Senate that would provide new resources to help states.

Now, let's talk about Washington paying its bills. The Bush administration has perfected the nasty habit of cost-shifting to the states. Examples are plentiful:

- The State Child Health Insurance Program (Schip). The beauty of Schip is that it is a federal-state partnership. Yet in August 2007, President Bush stopped states from expanding Schip to cover children in families who earn more than 250% of the federal poverty level. As a result, states must now carry the additional burden of providing health care for these children.

- Medicaid. The administration has also proposed or issued eight different regulations that alter the federal-state Medicaid partnership. In most cases, these regulations simply shift costs to states and localities. Collectively, they will reduce federal investment in Medicaid by $50 billion over the next five years. It's not as if poor people no longer need health care. Instead, these regulations are simply a maneuver to have someone else (i.e., the states) foot the bill.

- State Criminal Alien Assistance Program. By law, the federal government must reimburse states for the cost of incarcerating illegal immigrants who break state laws. But for years, the federal government has only reimbursed a fraction of the cost.

Arizona's unpaid bill is nearing $500 million. As governor, I must enforce the law and pay to incarcerate these individuals. The federal government just shrugs its shoulders and walks away from its statutory obligation.

- Real ID. The federal government passed Real ID so everyone would have a secure identification card. But it didn't pay states to do the work. Estimates for implementation run as high as $11 billion.

Even if you accept the Department of Homeland Security's suggestion that costs may be closer to $3.9 billion, this is a large unfunded liability. States are not in a position financially, nor inclined from a policy perspective, to bail out the federal government on Real ID.