>NJPP Monday Minute 8/16/10: MORE FEDERAL MONEY, BUT NOT ENOUGH FEDERAL MONEY

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Congress last week passed legislation that will send an additional $685 million to New Jersey – $399 million in increased Medicaid funds and $286 million to save teacher jobs. If properly implemented, these additional federal funds will save jobs; help the state’s ravaged economy and protect services to the most vulnerable.

But New Jersey’s share of the Medicaid relief was $181 million less than lawmakers expected, and that could punch a substantial hole in the state’s already anemic revenues.

JOBS FOR TEACHERS – $286 million

The new $286 million in federal funds going directly to school districts will help retain existing teachers, rehire former teachers or hire new teachers. According to the U.S. Department of Education, these funds should protect the jobs of about 3,900 teachers in New Jersey. That is about a third of the teachers expected to lose jobs as a result of cuts in state aid to education this year.

Gov. Christie initially opposed the aid for more teachers, but shifted his position after learning the federal government would distribute the funds in New Jersey if the state did not. That’s water under the bridge. It is now important that the state Department of Education work with the districts to accommodate these funds in their budgets as soon as possible to avoid any unnecessary teacher layoffs.

FEDERAL MEDICAID FUNDS – $399 million

In an effort to help states weather the lingering recession, Washington has been providing extra Medicaid funds to help protect the neediest residents. New Jersey already has spent about $1.4 billion through May of this year and expects to receive about $800 million more through December. The problem is that Gov. Christie (and about 30 other governors) reasonably assumed these Medicaid funds would be extended until June 2011, to cover the second half of FY2011 and so they balanced their budgets accordingly.

New Jersey built $580 million from the relief program into its revenue estimates, but will only receive $399 million.

This money is needed to avoid further downward spiraling of the state’s economy. There is general agreement that the recovery will be slow, with the potential for a “double dip” recession. States are most at risk because traditionally state revenues don’t rebound until a year or two after national recovery sets in, largely because unemployment is the last area to improve when a recession ends.

The relief Congress approved, however, falls $181 million short of expectations. The shortfall won’t require an immediate budget adjustment, but if it isn’t made up by increases in state revenue collections, program cuts might be required.

The downsizing of Medicaid relief payments by one-third is the result of increasingly partisan political wrangling in Congress, where the legislation got bogged down in a false debate over deficit spending.

With only a few exceptions, Republicans were united in the Senate and the House against the bill. They argued the nation could not afford to provide the relief, even though the bill was fully funded by closing corporate tax loopholes and eliminating the current increase in food stamps by 2014. The bill, plainly speaking, would not have increased the federal deficit by one penny.

Gov. Christie was right to join other governors in urging Congress to pass this necessary fiscal relief measure, and all of the Democratic members from New Jersey did vote in favor of the aid. Unfortunately, the governor wasn’t as persuasive with the members from his own party. New Jersey’s five Republican members joined in the partisan bloc that opposed the relief for state budgets, even after it was scaled back.

The opposition is even more surprising given the blame assigned to the state’s Congressional delegation for New Jersey’s tepid return on its citizens’ investment in federal taxes. New Jersey lags almost every other state in federal aid received as a percentage of federal income tax paid. For every dollar New Jerseyans pay in federal taxes, they get back 61 cents, according to one estimate.

Perhaps that’s due, in part, to state budget writers leaving too much federal money on the table. (see chart)

There are several instances of substantial federal dollars being lost because of minor cuts in the state budget. Take, for example, health care. For every $1 cut from the state’s successful FamilyCare health insurance program for working families, the state lost a $2 federal match. The governor’s rejection of $7.5 million in funding for family planning clinics cost the state a $9 match for each $1 spent by the state. Given the state’s diminishing revenues and the governor’s insistence on no tax increases, it seems folly to turn down money from the federal government for new teachers, social safety net programs or health care for working families and young women.

The total in lost federal funds from all state program cuts in New Jersey was about $250 million, according to NJPP estimates. That loss will multiply itself in subsequent years if the cuts are not restored.

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Filed under Congress, federal dollars, Gov. Chris Christie, Medicaid funds, Monday Minute, New Jersey Policy Perspective, Teachers, US Department of Education

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