Will the State Bailout Bill Backfire on Congress?

“We can’t stand by and do nothing while pink slips are given to men and women who educate our children or keep our communities safe,” said President Obama.

Congress passed and the President rapidly approved $26 billion in new stimulus funds for Education and Public Safety designed to prevent lay-offs or recall those already axed by State and Local Governments.  Speaker Nancy Pelosi called the House back into session to approve the bill which the Senate had approved earlier.

The US Department of Education said the bill could save 160,000 teacher jobs with the $16 billion for education while the remaining $10 billion was pegged to extend increased Medicaid payments to the states for an additional six months to enable them to avoid layoffs of public safety personnel.

The bill was approved largely on a party line vote with Republicans calling the bill a ‘giveaway to teachers unions’ and others complained that the bill forces states that controlled their spending and avoided big deficits to now subsidize other states like California, New York, Illinois and others that did not.

Memo to Speaker Pelosi:

The state bailout stimulus bill may not help and could actually make things worse for the states.


  • 30 States Assumed Stimulus Bailouts. The National Governors Association says that 30 of the 50 states have balanced their budgets by “anticipating” that Congress and the President would act to provide this kind of stimulus relief as one of the accounting tricks used when you don’t know what else to do.  So the stimulus money received by those states is not “new” money.  In California, the expected stimulus grant of $1.3 billion for additional Medicaid funding is $500 million LESS than the amount Governor Schwarzenegger had included in his proposed budget.
  • 75% of School Districts Cut Staffing Levels to Match Expected Funding. Because school teacher contracts required advanced notice of pink slips, most school districts have already cut staffing levels, offered early retirements or increased class sizes to avoid a funding crisis during the school year.  Adding back money now will not likely restore those jobs because it is one-time money and contracts are set.
  • Some State Budgets are Still in the Red even with the Stimulus Aid. California is more than $19 billion in the red with no agreement on balancing the budget. The Federal stimulus money will provide California with a maximum of $2.5 billion in revenue.  The new money is not enough to solve the problem.

Local reaction to passage of the state aid stimulus by San Francisco and Oakland public schools was that their budgets were set, the lay-offs made and the stimulus money was one-time.  Officials from both big urban school districts in the San Francisco Bay area told the TV news stations that they would use any stimulus money they received to reduce proposed furlough days and reimburse the unions for paybacks given to help balance the budget.

This is not what President Obama wanted to hear, but it appears to be exactly what the opponents of this new stimulus spending were complaining about.

But don’t worry, Congress paid for this stimulus program by cutting food stamps for the poor and closing a tax loophole used by multi-national corporations to allocate revenue between countries.

And there is one more problem, Congress in its wisdom added a requirement that says the States are not eligible to get this stimulus money unless they maintain current levels of spending in education.


If the states had been able to sustain current spending levels they would not need help and would not have laid off employees. California officials said this morning that means given the State’s budget shortfall of $19.1 billion that it may not qualify for the $2.5 billion anyway since the reason it laid off teachers and public safety workers was it did not have the money to pay them anymore.

Also this morning the Governor Schwarzenegger appealed a state judge’s ruling blocking his order of 3 additional furlough days per month for state employees.  State Labor unions sued arguing the furloughs placed an “undue burden on state employees” and a judge said the Governor lacked authority to order furloughs.  This is exactly opposite of a ruling last year upholding the Governor’s authority to furlough employees in a fiscal emergency.  The Governor took the action in the face of the failure of the State Legislature to approve a state budget and warnings from State Controller John Chiang that dwindling cash would mean he will have to start issuing IOUs for state payments by September if the budget is not passed.

Separately, the Governor with Legislative approval withdrew $11.1 billion in new state water bond projects from the November 2010 ballot for fear voters will reject them.  The measures will be deferred until November 2012.

These days the California’s other state nickname of the “Bear Republic” is sounding pretty much on target.



  1. So, They are giving back 100,000 per teacher. Funny, in one of Georgia’s largest school districts, they credited themselves with $80,000 per job cut – seems a lot when average teacher salaries in Georgia are $48,300.

  2. The $100k is likely a SWAG. But the real purpose of this is to bailout the pension and health care givebacks teachers and other public employees are being forced to put on the table to mitigate lay-offs and other cuts.

    Average salary costs are only part of the problem. The sum of salaries, pension costs and health care is a looming threat to many companies and is worse for public agencies with defined benefit plans larded up by politicians. ObamaCare is also backfiring assuring that health care costs rise at rapid rates over the next four years before the full effect of the law kicks in.

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