Senate set to pass $26 billion rescue package for states

Cities and states warned of devastating cuts if Congress didn't approve $26 billion in help for Medicaid and teachers. The Senate should pass it Thursday and the House next week.

By , Staff writer

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    Senate majority leader Harry Reid speaks during a news conference on Capitol Hill Wednesday to discuss the $26 billion jobs bill.
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States and cities around the nation are breathing easier now that the Congress is moving closer to passing a $26 billion bill that would extend federal Medicaid funding through the rest of their fiscal year and would provide states with extra money for teachers for 2011.

“Most of the states that wrote budgets this year assumed the extension would happen,” says Michael Leachman, a senior policy analyst at the Center on Budget and Policy Priorities (CBPP), a think tank in Washington. “If it does not get passed that means state legislatures will have to come back in special sessions or governors would have to enact cuts.”

The critical moment for the legislation came on Wednesday when Maine’s two Republican senators, Olympia Snowe and Susan Collins, agreed to vote with the Democrats to end debate on the issue. Tomorrow, the Senate is expected to pass the actual legislation.

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It then must be passed by the House, which is not in session. However, Speaker Nancy Pelosi will call lawmakers back into session to pass the legislation next week.

Call it FMAP

The original funding to help states with their Medicaid shortfalls was part of the American Recovery and Reinvestment Act of 2009. The federal government matches a percentage of each state’s spending on health care under Medicaid. Under the stimulus that percentage increased.

However, Congress only funded the increase of the Federal Medicaid Assistance Percentage (FMAP) through the end of this calendar year. Most states begin their fiscal year in June. “That means the federal relief for the states expires right smack in the middle of their fiscal year,” says Mr. Leachman.

Republicans were opposed to the additional spending if it added to the deficit. Democrats came up with some changes in the tax laws and made some adjustments in the Supplemental Nutrition Assistance Program to come up with the money.

Republicans then were opposed to the assistance for education, calling it a pay-back to the labor unions. “This is a straight-up payoff to Washington Democrats’ special interest labor union allies,” wrote Michael Steel, spokesman for the House minority leader John Boehner in an e-mail.

Democrats estimated the additional federal funding would provide jobs for about 300,000 educators. Many municipalities have been laying off teachers because of cuts from their states.

Big states grateful

In a June analysis, CBPP estimated that if the FMAP provision was not passed it would cost the states about $15 billion. The nonpartisan Congressional Budget Office estimated it at $16 billion. Every state would have been affected, from Alaska ($64 million) to Wyoming ($22 million).

But it was the big states with more generous benefits that would have been hurt the most. California stood to lose $1.8 billion and New York $2.2 billion.

In New York, Mayor Michael Bloomberg, in a statement, said the eventual passage of the bill would give the city $400 million in Medicaid funding and $200 million for education.

Once Obama’s signs the legislation into law, it won’t end the states’ problems.

CBPP estimated the total shortfall for the states in their 2010-11 fiscal year will come to $180 billion. The $26 billion will cover about one-third of the shortfall for this year, estimates Leachman.

“This is very important, it means states will have to lay off fewer people, and the impact on the private economy will be less than it would be,” he says. “But it’s important to note there will be still be deep cuts and the laying off of people because the shortfalls are so large.”

For example, New York City will face a projected $3.3 billion gap next year, says Mayor Bloomberg.

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