House Democrats in Washington, D.C., claim their massive federal stimulus package will require “unprecedented accountability” for how the added money is spent.  In reality, they’re pushing an unprecedented intrusion by the federal government into state and local decision-making on how to reallocate scarce resources in a severe fiscal crisis.

Excluding capital infrastructure, more than one-quarter of the $825 billion to be spent over the next two years will be distributed to states and local governments — more specifically, to K-12 schools, public colleges and universities, and Medicaid providers.  This will be a complex (not to mention opaque) process with high compliance costs, involving considerable behind-the-scenes byplay between federal bureaucrats and their counterparts in state capitals.  Making matters worse, some crucial passages of the federal appropriations are deliberately ambiguous.

For example, consider a tidbit from the proposed $79 billion State Fiscal Stabilization Fund, which is described under Title XIII of the main stimulus bill.  In describing how the biggest chunk of the money shall be allocated among local school districts, Section 13002 says each governor “shall first use the funds … to provide the amount of funds, through the state’s principal elementary and secondary funding formula, that is needed to restore state support for elementary and secondary education to the fiscal year 2008 level.”  A similar passage applies to the distribution of funds to public colleges and universities.

But which “fiscal 2008” are we talking about here?   The federal fiscal year that ended Sept. 30, 2008?   If so, for most of the country, that could be translated to mean state and local fiscal years ending in 2009.   In New York State’s case, that would mean the first $700 million in Title XIII funding in each of the next two years would have to be used to backfill Governor David Paterson’s proposed cuts in the statewide school aid formula.   New York City’s share under that formula is a little more than 40 percent.

If, on the other hand, the reference to “fiscal 2008” means state and local fiscal years ending in 2008, then the same hunk of federal cash must be distributed in line with the federal Title I education aid formula—under which 79 percent of the money would flow to New York City.

What all this has to do with “stimulating” the economy is anyone‘s guess.

My op-ed in today’s New York Post predicts that the state bailout funding in the stimulus stimulus bill will pump at least $17 billion in noncapital funding directly into New York state and local coffers — but the money is both temporary and narrowly targeted.

As a result, the federal bailout will do painfully little to forestall the massive tax hikes now being cooked up in Albany and City Hall. Nor will it do much to “stimulate” New York’s economy (unless, like Schumer and too many other leading New York politicians, you pretend public-sector unions and Medicaid providers are engines of economic growth).

New York State’s share of the surprisingly small capital infrastructure allocation elsewhere in the stimulus package will probably come to at least $3.4 billion.  That will bring the two-year total to well over $20 billion.  But if the state’s tax burden grows significantly heavier in the meantime — as still appears likely — the damage will more than offset the economic benefits dubiously associated with the rest of the package.

About the Author

E.J. McMahon

Edmund J. McMahon is a senior fellow at the Empire Center.

Read more by E.J. McMahon

You may also like

Thanks to Unions, NYC’s School Reopening Deal Was Costly and Educationally Hazardous

New York City schools reopened this fall under terms dictated by the city's teacher and principal unions. Now, as city schools close -- once more at the unions' behest -- the city is left with thousands of extra teachers hi Read More

With Hopes Dashed for “Blue Wave” Bailout, Cuomo Needs to Deal With Budget Shortfall

With the national election results still unclear, Governor Cuomo can no longer put off tough decisions on how to balance New York's pandemic-ravaged state budget. Read More

For State Lawmakers, Secrecy May Pay

New York state legislators may get a raise on January 1, 2021—but the people who elect them may not get to find out before voting ends next week. Read More

De Blasio’s (Apparent) Good Move Dissolves Into Phony “Savings”

Late Thursday, as hailed in this space, Mayor de Blasio finally made a decisive move—or at least seemed to make a move—in the direction of actually saving some money on labor costs by getting tough with a powerful (and powerfully self-entitled) municipal union. Read More

Cahill Charges Are An Indictment Of Cuomo’s Policies

Yesterday’s indictment of the state’s top construction union official on federal corruption charges raises a big question: if private companies are paying bribes to avoid having to work with certain construction unions, why is Governor Cuomo insisting that the state keep doing it? Read More

A Federal Emergency Rule Is Inflating New York’s Medicaid Enrollment

Strings attached to federal coronavirus relief funding appear to be inflating New York's Medicaid enrollment – and costs – at a time when the state faces unprecedented deficits. Read More

New York State Has Dug Itself Into Its Deepest Hole On Record

"State's Financial Hole Deepens" is the headline on Comptroller Thomas DiNapoli's press release accompanying the August cash flow report. Read More

State’s Per-Recipient Medicaid Spending Rises to 3rd Highest in the U.S.

New York's per-recipient Medicaid spending has soared to the nation's third highest rate, a sign of fiscal trouble for one of the state's most important programs. Read More

Subscribe

Sign up to receive updates about Empire Center research, news and events in your email.

CONTACT INFORMATION

Empire Center for Public Policy
30 South Pearl St.
Suite 1210
Albany, NY 12207

Phone: 518-434-3100
Fax: 518-434-3130
E-Mail: info@empirecenter.org

About

The Empire Center is an independent, non-partisan, non-profit think tank located in Albany, New York. Our mission is to make New York a better place to live and work by promoting public policy reforms grounded in free-market principles, personal responsibility, and the ideals of effective and accountable government.