A huge chunk of stimulus money was wasted paying union salaries instead of fixing budgets. Now states have are begging for more as noted by the Wall Street Journal in States Hope for a Rich Uncle.

Strapped states, facing up to $180 billion in budget deficits in the next fiscal year, are going hat in hand to Washington.

California wants $6.9 billion in federal money for the next fiscal year, and Republican Gov. Arnold Schwarzenegger says he’ll have to eliminate state health and welfare programs without it. Illinois, facing a $13 billion deficit that equals roughly half of the state’s operating budget, has what it dubs a stimulus team and a group in Washington pressing for additional state aid.

Among other things, Illinois is hoping the federal government will keep paying a higher share of Medicaid costs. “That’s $600 million we desperately need,” said Kelly Kraft, a spokeswoman for Democratic Gov. Pat Quinn’s budget office. Those funds already are counted in the governor’s budget proposal.

But in Congress, members are balking at further subsidies amid an election-year outcry over the U.S. deficit and federal involvement in the economy.

That tension sets up fierce battles as states work out budgets for the fiscal year beginning July 1. Because they can’t run deficits, most states face yet more tough choices: raise taxes, cut services, lay off workers or trim employees’ wages and benefits over union opposition.

About a third of last year’s economic-stimulus package went to aid states, including $90 billion to help with Medicaid costs and $54 billion for schools and general services, the largest items in states’ budgets. Supporters hoped the money would tide over the states for the worst of the recession.

But now those funds have almost all run out. Quarterly payments of Medicaid money are scheduled to end in December, and states will have spent most of their education funds by June. While the economy is starting to improve, unemployment remains high, leaving states with sliding tax revenue and rising costs for welfare services.

California has been particularly vocal in describing its fiscal woes to Washington in the past year. Mr. Schwarzenegger has prodded the California congressional delegation to bring home more federal money by blasting them on national television, saying they haven’t done enough for the state. He has visited Washington to meet with the delegation and with President Barack Obama. Leaders of the California legislature have also lobbied on Capitol Hill for more aid.

But groups that lobby on behalf of states, including the Council of State Governments, National Conference of State Legislatures and National Governors Association, say they have little hope of getting much more.

“There just doesn’t seem to be the political will to address that issue,” said David Shreve, a lobbyist for NCSL.

Encouraging Sign

I am encouraged that state lobbyists do not think the money is coming. If so, the result will be a much overdue big squeeze on unions. Governor Christie is addressing the issue head on, while most other governors are praying for miracles.

It’s safe to say the next Congress will be much more conservative than this one. So, if aid to states is coming, it will be coming soon or greatly diminished, if at all.

Let’s hope not at all. Fiscal prudence would be a much needed and welcome adjustment.

Mike “Mish” Shedlock
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