WASHINGTON Dec 15 Despite an historic collapse
in revenue, U.S. states were able to modestly increase their
spending for two years after the federal government sent them
aid through the economic stimulus plan, according to a report
released on Wednesday.
State leaders have warned that their budgets have become so
dependent on federal money that they risk new budget holes or
possibly another recession next year as the final stimulus
funding dries up.
"Looking beyond fiscal 2010, states are very concerned that
state revenues will not have recovered to pre-recession levels
by the time the additional federal funds begin winding down in
fiscal 2011," the report from the National Association of State
Budget Officers said, adding states are likely to face
increased demands for healthcare and public assistance.
State general funds declined 3.3 percent in fiscal 2009 and
an additional 5.9 percent in fiscal 2010, which ended for most
states in June, according to the group.
"At the same time general fund spending was rapidly
declining, federal fund spending experienced sizable
increases," the report said.
The $814 billion economic stimulus plan included the
largest transfer of federal funds to states in U.S. history.
State spending of federal money shot up 17.7 percent in fiscal
2009 and 23.4 percent in fiscal 2010, the association said.
The economic stimulus plan was passed in February 2009,
seven months into the fiscal year for most states.
Now federal funds make up more than 34 percent of state
spending. Before the plan was enacted, they made up slightly
more than 26 percent.
"Due to the influx of additional federal dollars, total
state expenditures grew modestly in both fiscal 2009 and fiscal
2010," the report said.
Regardless of economic conditions, Medicaid, the healthcare
program for the poor administered by the states with partial
reimbursement by the U.S. government, takes up a large amount
of state spending.
In fiscal 2010, it represented the largest share of total
state spending for the first time since 2006, the group said.
As people lost their jobs from the recession, they turned
more to Medicaid for healthcare. Meanwhile, the stimulus plan
boosted federal dollars sent to states for the program. The two
developments combined to push up total state Medicaid spending
by 7.8 percent in fiscal 2009 and 8.2 percent in fiscal 2010.
Along with expecting increased demand for help from the
unemployed and those still struggling from the effects of the
recession, states foresee pressure to maintain "adequate
education and transportation funding levels."
"States will be forced to make difficult decisions as tight
fiscal conditions are expected to persist for a number of years
to come," the report said.
(Reporting by Lisa Lambert; Editing by Kenneth Barry)