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The Other Shoe Dropping On State Stimulus Money

Back when the economic stimulus bill was being debated, and reshaped, in the U.S. Senate, a few of us drew attention to the fairly radical cutbacks in "flexible" state money being demanded by the Nelson-Collins group that held the fate of the legislation in their hands. The idea for the flexible funds was to keep states from undercutting the national stimulus effort by cutting back services and laying off employees.

In the end, the overall "state fiscal stabilization fund" in the stimulus legislation was cut from the $79 billion (over two years) in the House bill to $53 billion; but the truly flexible portion of the fund that could be used by states for non-education as well as education purposes dropped from $25 billion to $8 billion. (If you want to understand the complicated math and confusing terminology of these developments, check out my posts here and here.)

So: now the other shoe is dropping, and as a report in the Washington Post today shows, states are indeed cutting back services and employees, in some cases drastically.

When asked if "centrist" senators regretted the cutbacks in flexible state money, a spokesman for Ben Nelson told the Post:

"This is a stimulus bill, not a state bailout bill," he said. "While the economic recovery bill will undoubtedly help states with their budgets and employment, the primary intent was to stimulate the economy."

You'd think that Nelson, a former governor, would understand how state cutbacks and layoffs would negatively effect efforts to "stimulate the economy," but I guess not.

Perhaps the best defense that can be made of the flexible funding cutbacks is that some states are not exactly showing very good judgment in using what little money they got outside Medicaid. In Missouri, Republican legislators are trying to use a big chunk of stimulus money for a highly regressive tax cut. One of these solons told the Associated Press: "This is real stimulus. This is what will make our country turn around -- give the dollars back to the taxpayers, give the power to the people." Since the latest tax shenanigans in Missouri are part of a broader GOP effort there to repeal the income tax and impose higher sales taxes, it's pretty clear which "people" they want to empower.