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ARRA Saves States from Deeper Dive

Though state officials have faced difficult choices as they struggle to finalize 2010 budgets across the country, it’s clear the task would have been even more grim without a crucial infusion of federal money.

According to the Center on Budget and Policy Priorities, as dire as the states’ fiscal condition is – with dramatic revenue downturns leading in some cases to unprecedented service cuts – evidence shows this bad situation would be substantially worse if not for the $787 billion American REcovery and Reinvestment Act package enacted in February.

The package included a $140 billion allocation for states.  Without the federal recovery assistance, spending cuts, service reductions, and tax increases would no doubt be worse, wreaking even more havoc on local economic conditions.

What’s more, the allocation was targeted specifically at education and healthcare – two of the biggest expenditures within state government.  Without those dollars there would have been significant cuts to both areas via increased furloughs and layoffs within state and local governments from, arguably, the most critical services the government provides.  Many communities that depend on the employment associated with these areas to survive might have faced severe financial crises.

The federal aid is enough to close, on average, roughly 30-40% of state budget shortfalls.  And its benefit will continue to play a crucial role in states’ – and the country’s – economic recovery.

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