JACKSON – As legislators and Gov. Haley Barbour prepare to pass a budget during the 2010 legislative session, federal stimulus funds will be running out.
Barbour has projected that he and legislators will have to deal with a $715 million shortfall for the upcoming fiscal year, which begins July 1.
And he has estimated that the shortfall for the following year will be more than $1.2 billion.
Barbour has predicted that state layoffs will result from the current budget problems.
The primary reason for the shortfall is a slowdown in state tax collections caused by the current economic climate.
But another factor will be at work soon: The American Recovery and Reinvestment funds that are helping prop up the current budget will start to run out during the middle of the upcoming fiscal year, around Dec. 31, 2010.
Help for the budget
Earlier this year, Congress passed and President Barack Obama signed into law the massive stimulus package.
While the stimulus was billed as an effort to spur economic growth by creating jobs, one of its primary functions was to plug state budget holes caused by a slowdown in tax collections.
The Mississippi budget for the current year contains more than $500 million in stimulus funds, primarily in the areas of health care and education.
But the stimulus funds are running out before state tax collections are expected to rebound. And state tax collections historically are one of the last economic indicators to recover after a recession.
Barbour recently predicted that Mississippi tax collections will not reach fiscal year 2008 levels again for four to five years.
Since reaching that zenith in FY 2008, the state is in the midst of its second year of unprecedented declines in state tax collections.
Yet, the portion of the stimulus funds providing an enhanced federal match for Medicaid will stop at the end of December 2010. That will mean the loss of an estimated $136 million.
And most other stimulus programs will stop after the next fiscal year ends on June 30, 2011. That will spell the loss of another about $300 million.
No to more stimulus
Even though Barbour predicts the state still will be dealing with a slowdown in tax collections, he said recently he does not favor a follow-up stimulus package, as some have suggested.
But Buddy Bynum, Barbour’s communications director, said the governor has indicated he would favor a gradual step-down in the enhanced federal Medicaid payments.
Medicaid is a federal-state program that provides health care for the elderly, disabled and poor pregnant women and children. Normally, the federal government provides 76 cents of each Medicaid dollar spent in Mississippi.
Because Mississippi is the nation’s poorest state, it has the best federal match rate. Under the stimulus program, the federal government is paying 84 cents of each Medicaid dollar spent while Mississippi is paying 16 cents, resulting in a savings of more than $250 million in the current budget.
But the enhanced federal match will end on Dec. 31, 2010 – in the middle of the next budget year. Bynum said the governor “might accept” a gradual return to the state’s traditional match rate of 24 percent. He said it would make sense to go to an 18 percent match rate at first and stairstep up to the 24 percent.
House Appropriations Committee Chairman Johnny Stringer, D-Montrose, said any additional Medicaid help from the federal government during the tough economic times would be welcomed.
“That would really make a difference in our budget,” Stringer said. “And we’re not the only state in a pickle over this. But it would do more for our budget situation than just about anything else.”
The liberal-leaning American Prospect magazine, citing the Center on Budget and Policies Priorities, said that during a three-year period the states face budget shortfalls of $454 billion because of declining tax collections.
The stimulus package, the magazine said, covers about one-third of that, leaving areas like health care and education unfunded.
The American Prospect reasoned that another round of stimulus help was needed for the states.
But except for the stairstep back to the larger state match for Medicaid, Barbour said he would oppose a second stimulus package.
All a second stimulus would do, Barbour said, “is put off states having to do what needs to be done,” meaning he would favor proceeding with cuts as he has recommended instead of additional federal help.
Barbour said that the states “would have been better off if they were given more leeway” by allowing them to spread out the stimulus funds over a longer period of time.
He said that would have “given room for a soft landing.”
Contact Bobby Harrison at (601) 353-3119 or firstname.lastname@example.org.
Bobby Harrison/NEMS Daily Journal