BY STEPHEN C. FEHR
STATELINE.ORG STAFF WRITER
Whether they welcomed or snubbed the federal economic stimulus package, state lawmakers took advantage of the bailout dollars this year to help patch their state's shaky finances.
Now, as they start thinking ahead to next year's budget and the 2010 elections, lawmakers are increasingly apprehensive about what will happen when the stimulus money dries up. They predict even deeper cuts in services, higher taxes and raids on rainy day funds to balance budgets.
"What's the exit strategy when this is over?" asked state Rep. Steven Costantino, a Democrat from Rhode Island who heads the House Finance Committee. "The stimulus is really a one-shot infusion that at some point ends."
Most of the $275 billion that states will receive from the $787 billion package will be spent in fiscal 2009, 2010 and 2011 budgets, with fewer dollars available in fiscal 2012.
The role of stimulus funds in helping soften the recession's blow on state budgets this year is clear from a newly released preliminary survey of half the states by the National Conference of State Legislatures. All of the 25 states surveyed said they used federal stimulus dollars for more than 20 percent of their gap-closing solution. The survey also shows how vulnerable states are as many start preparing for fiscal 2011 budgets.
Texas lawmakers, for example, have pointed with pride to the fact they kept taxes low, made modest spending cuts and built up a rainy day fund this year. But that was possible, the survey showed, because Texas used nearly all (96.7 percent) of its stimulus dollars to close its budget shortfall for the fiscal year beginning July 1, the highest percentage of the 25 states.
Nebraska (88 percent), Kentucky (68.4 percent), South Carolina (64.3 percent), Vermont (62 percent) and New Mexico (61.4 percent) also used a large percentage of stimulus dollars to balance their budgets. Alaska used only 3 percent of its stimulus money to cover its budget gap, the lowest percentage of the 25 states.
Because of the federal money, Alabama, Iowa, Minnesota, Oklahoma, South Carolina and South Dakota avoided a year-over-year decline in spending between fiscal 2009 and 2010, according to the survey and a recent NCSL report. Had there been less money to spend, those states would have had to make more severe cuts and or raise taxes. In Alabama, spending between the 2009 and 2010 budget years would have dipped 15.1 percent but, because of the stimulus, it went up 7.6 percent. South Carolina was facing a 3.2 percent decrease in spending but came out ahead by 10.6 percent.
The stimulus funds also helped keep at least four states - Alabama, Kentucky, Washington and Wisconsin - in fiscal 2009 from having to live on fewer operating funds than the year before. In Alabama, fiscal 2009 spending would have fallen 4.8 percent without stimulus money but instead rose 8 percent - a 12.8 percent swing.
But states probably cannot avoid a drop in spending money when the stimulus money stops coming, the survey said, because the growth in tax revenue will be too slow. "State revenue performance is not expected to rebound strongly enough to make up for lost (stimulus) funds," said the survey, which was presented July 22 at NCSL's annual legislative summit in Philadelphia by NCSL fiscal specialist Corina Eckl. She said she hopes the completed survey, with results from all 50 states, will be finished this summer.