Perhaps as they celebrate the glories of the American federal system this Fourth of July, the states will be expressing gratitude to Congress for the $20 billion relief package that will soon be in the mail. It's a well-timed present, considering the fiscal mess most of them are in. For once, it seems, the feds have chosen to recognize the fiscal stress being experienced by their cousins. The whole thing almost sounds too good to be true, and it is.
To start out on the positive side, it is gratifying that a handful of moderate U.S. senators cared enough about the condition of the states to make this assistance a pivot point for supporting the tax cuts in general. While the actual numbers keep jumping around, states have spent the past couple of months looking at upwards of $70 billion in budget shortfalls for the fiscal year that just began.
To be accurate, the support of such Republican senators as Maine's Olympia Snowe and Ohio's George Voinovich didn't materialize out of the mist. A coalition of state and local government interests like the National Conference of State Legislatures, the National League of Cities, and the U.S. Conference of Mayors had been working the issue hard for a couple of years.
While relations among those government interest groups are typically cordial, they frequently clash over who should control federal grant money. The groups lobbied for this year's federal aid on the mutual assumption that a significant portion of the $20 billion (or $40 billion, which they initially hoped for) would be split between states and localities, and they stuck together on that to the end.
But that's where it all starts to get messy. First, one organization was notable for its absence in the coalition: the National Governors' Association. NGA's absence is noteworthy because it's usually the 800- pound gorilla on the squad. But beset by conflicts among its ideologically divided membership, NGA has come to behave more like a 98-pound weakling when it comes to using its influence in Washington. That's not good for state interests and it's not particularly good for any of the coalitions of governmental organizations that used to count on NGA's clout in lobbying battles.
Second, despite the initial agreements, all the money in the tax bill wound up going to the states. NCSL, NLC and the other coalition partners had forged ahead on the understanding that the split would be 50 percent to help with state Medicaid costs, 25 percent for other state fiscal relief and 25 percent for localities.
Some of the more militant local interests weren't particularly happy about the split, but in the cause of solidarity, they backed the plan. Then, just before the bill's passage, word got out that efforts were being made in Congress to reduce the local share even further; some local lobbyists say they feared being zeroed out. The reason given for this change was concern over how to draw up formulas for allocating cash to thousands of local governments. In the face of the rumors, the local government groups hit their legislative alert buttons and the e- mails and phone calls started pouring into the offices of the key swing senators: "Save the local share."
It's unclear who floated the possibility that localities might get cut out. There certainly was discussion about reducing their allocation from $5 billion to $4 billion. Some local government interests say they could have lived with that and wouldn't have panicked if they hadn't feared being written off altogether. At any rate, the alerts did get sent, and they incensed some key Senate supporters, who decided by way of retribution that the local share would, in fact, be removed from the bill. This change in the Senate position spelled disaster for the local lobby; mayors and big cities have never been popular among the more conservative Republicans who run things on the House side. When they lose in the Senate, they're defeated.
But whatever actually transpired, the locals are now left in a familiar position, having to depend on states to do the right thing and pass a little of the money down when it starts flowing to state capitals. "I'm glad that states got their money," says Don Borut, the ever-graceful executive director of the National League of Cities, "and terribly disappointed that we didn't. Now we need to make sure that state legislators are aware that we worked with the states to get them general budget relief and that some of that money should be used for state programs that support cities."
Which is where the story turns from ugly to just sad. After all the lobbying, maneuvering, hurt feelings and broken faith, the amount of money being discussed here just isn't very much in the grand scheme of things. State and local governments still have escalating Medicaid costs to contend with. And they have the costs associated with such programs and policy areas as homeland security, school accountability and voting reform, all while their own economies continue limping south.
And should the economic stimulus plan sputter, states and locals will be in even worse shape. Having won their relative pittance, they won't be able to go back to Congress anytime soon for further relief. "We'll be hearing a lot about this money," one local government lobbyist says. "They'll throw this right back at us."