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Federal Salve for State Pain

January 03, 2003

It isn't just California. From coast to coast, state and local governments are struggling to fix their worst fiscal crisis in decades by firing employees, raising taxes and slashing spending. Though this may allow states to meet balanced budget requirements, it threatens to stall, even cripple, national economic recovery. Only the federal government can provide the immediate fiscal relief that states require, but within the Bush administration, long-term tax cuts are the economic policy being pursued.

Plummeting tax revenues are forcing states to gut programs for public education, job training, child care and state universities. Gov. Gray Davis has proposed eliminating public health insurance for almost 300,000 low-income California families.

In Tennessee, Oklahoma, Nebraska, New Jersey and Missouri, steep public health cuts are scheduled or being implemented. This comes on top of the loss of mainly private health insurance by 1.4 million people during the economic downturn of 2000-2001.

The states are also being buffeted by new costs for homeland security. Davis' office says it is still waiting for about $350 million in federal reimbursement for costs such as highway and coastal patrols.

If the White House would view tax policy more broadly, it would see the merits in a stimulus package proposed last month by Sen. Max Baucus (D-Mont.) that would distribute $75 billion to the states with no restrictions on how the funding might be used and a separate health insurance tax credit for small businesses.

The administration could also back temporarily increasing the federal government's share of Medicaid costs. In July, the Senate approved on a voice vote a bipartisan amendment granting $9 billion in relief to the states, partly by increasing funding for Medicaid, but it was never taken up by the House.

The most urgently needed federal action is an extension of temporary federal unemployment assistance for almost 800,000 workers whose benefits expired Dec. 28 and the thousands more whose benefits expire every week.

An extension would not send money directly into state coffers, but it would act as an immediate local economic stimulus. In his Dec. 14 radio address, President Bush stated that it should be "a first order of business" when Congress returns Tuesday but he was distressingly vague about the terms of any extension.

The president has not wavered in his determination to keep passing new long-term tax cuts despite the galloping federal deficit, the lack of market response to previous cuts and the dire needs of the states. If Bush and members of Congress want to turn around the economy, they need to think local.

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