Baucus Statement on State Fiscal Relief in the American Recovery and Reinvestment Act of 2009

When this country was founded, there was great debate about the roles of the federal and state governments. Our founding fathers questioned which should be more powerful, which should retain what privileges, and how to ensure an effective union of states.

Alexander Hamilton, the first United States Secretary of the Treasury, advocated for the federalgovernment to buy the states’ Revolutionary War debt. The idea was controversial, but the merits ofthe proposal have proven to be sound.

In 1790, there were two main reasons Alexander Hamilton suggested the Federal government assume State debt. First, the federal government was in a better position to issue and sell bonds to satisfy the debt. And second, the assumption of state debt would serve to rally local economic interests to promote broader, national goals.

Many things have changed since 1790, but some things remain the same. During recessionary periods,state revenue suffers. And unlike the Federal government, states must balance their budgets. Just like in 1790, the Federal government is still in a better position to assume debt.

These difficult times also call for unity among the states. Every state is suffering, but we must band together to help those among us that are worst off. We need to hold back our personal interests and focus instead on our national goals.

In addition to the arguments set forth by Hamilton over 200 years ago, modern economists tell us that state fiscal relief is an effective means to stimulate the economy.

Economists also advise that targeted relief to those most in need — not based on circumstances of states’ own making, but based on true measures of distress — is the best means of distribution.

The bill before us today would provide much-needed relief to every state through a temporary increase in the Federal match rate for Medicaid expenses. The bill would also provide additional aid targeted to states facing the most precarious fiscal situations, measured by an increase in unemployment.

This temporary assistance will help states avoid having to make tough choices – like whether to make significant budget cuts or raise taxes – both of which would make this economic crisis worse.

It is important that we strike a balance in this bill between spending too little and too much. Some of my colleagues are worried that we are spending beyond what is needed and will end up passing along too much debt to future generations. This package is significant, but the risk of doing too little has been over-looked.

During times of economic distress, Medicaid suffers from the blows of a “one-two punch.” That is, just when state revenues are lowest, the demand for Medicaid is highest.

If we do not give states enough money, states won’t be able to protect their Medicaid programs against the blows thrown by the economy. That means fewer services will be available to fewer people at atime when need is increasing.

But, giving states more money than they need won’t stimulate the economy. In order to stimulate the economy, this money must be spent quickly and it must go toward job creation or protection of vulnerable populations.

To be stimulative and get the economy moving again, state fiscal relief must prevent any exacerbation of an already bad situation. By preventing Medicaid cuts, this bill does just that.

This bill makes sure we will not see a big increase in the number of Americans without health insurance.We must remember that having so many uninsured Americans is not without costs. Instead, the cost ofcaring for the uninsured is shifted to the insured. It is in all of our best interests to prevent more Americans from losing their health insurance.

This package has just the right balance of giving states enough support without giving them too much.The state fiscal relief provisions will not eliminate state budgetary difficulties, but they will provide acushion. This package won’t fix everything, but it is a big step in the right direction.

While not all states have responded to the economic downturn in the same way, no state is immune to the impact of a national recession. Looking back on past recessionary periods, we can see that some states, often those with large commerce-based economies, feel the blow faster than others. The impact on states with commodity-based economies, on the other hand, is often delayed.

Because no two states will experience the impact of the recession at precisely the same time or to exactly the same extent, it is important that the relief be targeted to those states that are most in need.In 1790, some states had already paid off their Revolutionary War debt, but it was important to the nation as a whole that all states be relieved.

On top of a generous, across-the-board increase for all states, this package provides additional aid to those states with high unemployment. If a state’s unemployment continues to increase, the state may qualify for even more relief.

Unemployment is an effective measure of a state’s fiscal condition. Often, when people lose their jobs,they also lose their health insurance. This places a higher demand on Medicaid. It is estimated that aone percent increase in unemployment increases enrollment in Medicaid and CHIP by one million people.

Increasing the FMAP percentages is the quickest way to get relief to states. In addition to preventing cuts to Medicaid, this aid will provide for much needed economic activity. People will be more productive. Jobs will be saved, and industries that rely on and contribute to the strength of our healthcare system will remain sound.

This provision will not only improve the health of Medicaid beneficiaries, but it will improve the fiscal health of each state. This is a key element of any attempt to pull the national economy out of this recession.

We’ve done this before and we know it’s effective. In 2003, we provided $20 billion in state fiscal relief,evenly split between grants and an FMAP increase. The FMAP increase proved successful in preventing planned Medicaid cuts and restoring some previous cutbacks.

However, an analysis by the Urban Institute found that we could have done a better job back in 2003.Despite the immediacy and complexity of the situation, the fiscal relief was delayed and uniform. Some states were forced to take action before relief was available. And because the economic downturn ofeach state varied, some states didn’t get enough assistance and some states got assistance at the wrong time.

Let’s learn from our mistakes. The partially targeted approach in this package will work better. It will give all states some assistance – a method that is effective and simple. But it will also give more money to states with the greatest need, which will help ensure we get the biggest bang for our buck.

These are difficult times. But this country is resilient. We must draw on the wisdom of our founding fathers and stick together. We are more than a country. We are a union of states. Let us remember the good judgment of Alexander Hamilton and come together as a nation to help each of our states.

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