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NGA Urges FMAP Help; Action Isn’t a Given

JUL 12, 2010 7:32pm ET
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WASHINGTON — Congress returns to work this week still lacking a clear game plan for extending bond programs and other federal assistance for state and local governments, despite pleas for the extensions from governors meeting in Boston through the weekend.

Meanwhile, former Sen. Alan Simpson, R-Wyo., and President Bill Clinton’s chief of staff Erskine B. Bowles, co-chairs of the National Commission on Fiscal Responsibility and Reform, on Sunday warned those attending the National Governors Association meeting not to expect continuing federal aid for state budgets.

“I don’t think you can anticipate, no matter how much the economy improves, any ­additional help from the federal government,” Bowles said. “They just simply do not have the ­resources.”

Bowles said the national deficit will increase by $2 trillion over the next 10 years and that the United States will be spending $1 trillion a year on interest payments by 2020.

“This debt is like a cancer,” Bowles said. “We can’t grow our way out of this, we can’t tax our way out.”

The commission is charged with sending Congress policy recommendations by Dec. 1 that are designed to balance the budget by 2015, excluding interest payments on the national debt. The commission’s next scheduled meeting, its fourth, is expected to be held here on July 28.

Vermont Gov. James H. Douglas, a Republican and former NGA  chairman, suggested members should consider ­endorsing the commission’s ­recommendations.

Legislation designed to extend bond and other tax-related programs, dubbed the American Jobs and Closing Tax Loopholes Act, was tabled last month by Senate ­Majority Leader Harry Reid, D-Nev., after Republicans repeatedly blocked it, arguing the package would add to the federal deficit.

Several municipal market participants and legislative staff said yesterday that they are unaware of any new attempts to rewrite the legislation to gain more support for it and noted that the window for prompt action on the extensions is closing as lawmakers shift their attention to the rapidly approaching November elections.

The legislation included a six-month extension of enhanced federal matching funds under the Federal Medicaid ­Assistance Percentages program through June 2011, prompting several states to count on that funding in their recently approved budgets.

The bill also would have extended for two years the popular Build America Bonds program, which is scheduled to expire at the end of the year. It also would have extended several other temporary bond provisions originally included in the American Recovery and Reinvestment Act, such as an increased small issuer exception for bank qualified bonds and an exemption from the alternative minimum tax for private activity bonds.

Some congressional sources remained confident that the tax provisions will eventually be extended, but said the legislation could be shelved until after the November elections.

One said lawmakers could easily craft a revenue-neutral package if unpaid items, such as a provision that would retroactively restore through the end of November unemployment benefits that expired on June 2, were carved out and considered separately.

Lawmakers already took this approach to some programs after the tax package sputtered, separating and passing a provision restoring cuts to Medicare payments to physicians.

At their meeting, the governors agreed that Congress needs to pass an extension of FMAP. West Virginia Gov. Joe ­Manchin 3d, a Democrat who this weekend became NGA chairman for the year, said in an interview that an FMAP extension is the association’s “number-one priority.”

However, Manchin said there is no consensus among governors on a lobbying effort to extend the BABs program. NGA “has not taken a position on that,” he said.

“Governors feel very strongly about the debt level. Some states have no other alternative but to get all the help they can. I sympathize and understand that,” he said.

On Friday, six state and local groups — but not the NGA — sent a letter to Sens. Max Baucus, D-Mont., and Charles Grassley, R-Iowa, urging them to extend the BABs program.

Congress’ failure to move forward with the extenders legislation means some states will have to reopen their fiscal 2011 budgets to compensate for the loss of anticipated federal funds.

Pennsylvania Gov. Edward G. Rendell, a Democrat, plans to reconvene the state legislature later this month to discuss fiscal 2011 budget spending freezes if the FMAP extension is not passed by then, Gary Tuma, a spokesperson for Rendell, said Monday. Pennsylvania’s fiscal 2011 budget relies on $850 million from the FMAP extension.

“So many of our Democrat and Republican states are hurting so badly to balance their budgets that now they are going to have to make severe cuts if that money runs out on Jan. 1,” Manchin said.

Governors also discussed the state of the economy. Many said the national economic recovery has dimmed and that they are concerned for their budgets in 2011 once stimulus funds are gone.

The economic “recovery has slowed,” New York Gov. David Paterson, a Democrat, said during a panel discussion.

South Carolina Gov. Mark Sanford, a Republican, said the country is “bound for a double-dip recession” and that fiscal 2012 will be the “mother of all inventive years” as states are forced to cope without the stimulus aid.

Governors agreed that they need to create jobs to grow their states out of the recession. But the consensus broke down over a debate to cut taxes to encourage business development or protect education spending.

In a briefing on the economy, Yolanda Kodrzycki, vice president and director of the New England Public Policy Center at the Federal Reserve Bank of Boston, said the economy is “nowhere near” as bad as it was in 2008.

But states next year will be pressured for more aid from local governments, which are more reliant on property taxes, she said. As property values have dropped amid the recession, local tax collections have also fallen, she said. These tax revenues lag the economic recovery, making 2011 “just as tough” for local governments, Kodrzycki said.

Governors’ “view of the economy is different from the Federal Reserve because state government revenue is always one of the last pieces of the economy to turn around,” Steven G. Cochrane, managing director and an economist with Moody’s Economy.com, said in an interview ­Monday.

An FMAP extension “would do a lot of good” for states’ economies, he said, adding, the funding “is quickly turned around and gets spent” helping the broader economy.

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