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State Aid Failure Will Have Consequences

The apparent defeat in the Senate of a long-awaited jobs bill (a.k.a., the "second stimulus") is mainly being discussed in terms of the Republican strategy of steadily eroding the package and then killing it; or in terms of the impact on unemployed people who will lose their jobless benefits.

That's all very real, but another consequence of this development will play out in state capitals and perhaps in state general election contests, thanks to the demise of assistance to the states that was much needed to avoid health benefit cuts and personnel layoffs.

Originally, the jobs bill was intended to extend the state aid contained in the original stimulus package. But as the bill was racheted down, the version limping onto the Senate floor included only $16 billion for a partial extension of the Medicaid "super-match" designed to prevent major benefit and eligibility reductions for the federal-state safety net health care program.

Unfortunately, 34 states planned on receiving that money, and its failure to materialize is going to create a whole new round of state budget crises. In many states, we can expect Medicaid cuts and/or reductions in other state spending, quite likely including layoffs of teachers and other public employees. That's why most Republican state officials did not share the happy-talk of their brethren in Washington about opposing "bailouts of the states."

State budget cuts will have a baleful effect on the economy, and vague conservative talk that "shringing government" will somehow produce private-sector growth is going to be exposed as illusory.

But there could be political consequences as well, as voters begin to realize that there is no big pot of money labeled "waste, fraud and abuse" that can be tapped to balance state budgets, much less to fund the high-end personal and corporate tax cuts that many Republicans continue to call for in the latest incarnation of the discredited theory of supply-side economics.

In other words, the anti-government populism that conservatives are counting on as electoral magic this November may lose some of its appeal when reality sets in. And Democrats should be quick to point out there is no such thing as a free "austerity" lunch.