State fiscal aid key part of federal economic recovery package

The incoming Obama administration and Congressional leaders have been working on an $825 billion economic recovery package that was released by the House yesterday. The package is in two pieces and is expected to move quickly through the House Ways and Means and Appropriations committees next week before going to the House floor for a vote. The bill is likely to be considered under a “closed rule” that limits amendments. In the Senate, the package will be considered by the Finance and Appropriations Committees before coming to a vote in the full Senate in early February. Congressional leaders hope to have a conference agreement passed by both the House and Senate before members go home for the President’s Day recess on Feb. 13.

One of the key features of the package is expected to be federal fiscal aid to states in the form of a temporary increase in the federal Medicaid matching rate. Currently, the federal government pays half of Minnesota’s Medicaid costs.  The House bill includes $87 billion in additional matching funds to the states through the end of FY 2010, which would help states maintain Medicaid coverage for low-income individuals and families even as they face budget shortfalls.

However, some in Congress, including Senate Minority Leader Mitch McConnell, R-KY, are now suggesting that any federal aid to states should be in the form of loans instead of grants, which would dramatically reduce the ability of the aid to stimulate the economy. In fact, some states are prohibited by their state constitutions or state law from taking loans. At a time when nearly all of the states, including Minnesota, are running cumulative budget shortfalls of more than $350 billion due to the nationwide economic downturn, it is imperative that the federal government provide aid through grants, not loans. Continued health care for low-income Minnesotans is at stake.

Stay tuned for more analysis in the days ahead.

-Steve Francisco

About Steve Francisco

Steve Francisco is the former federal policy analyst for the Minnesota Budget Project.
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