States Slow to Request Recovery Funds

[1]It seems that one of the themes running through the recovery effort is the (relatively) blazing speed of the Recovery Act as it passed through Congress versus the considerably slower pace of Recovery Act funds disbursement from Washington. Last week, the New York Times [2] reported that only a "sliver" of the stimulus money has been distributed ($36.8 billion [3] has been disbursed so far, according to the latest data from Recovery.gov [4]), most of which was in the form of one-time Social Security checks, Medicaid supplements, and unemployment benefits. But while the rate and types of spending were prescribed by law -- $115 billion in spending was appropriated through the end of September of this year -- other factors are a slowing the rate of fund disbursal into the economy.

An article in CongressDaily [5] ($) today helps shed some light on the problem. Apparently, more than half of the states just aren't applying for parts of their stimulus money. The article looks at the State Fiscal Stabilization Fund [6] (SFSF), an enormous pot of money overseen by the Education Department. The fund is designed to help state and local governments fill holes in their education budgets, in an effort to stave off huge teacher layoffs and drive education reform, and it's also supposed to support select public services. All of the $48.6 billion in the fund is slated to go out the door this year, but so far, only 22 states have applied for funds, and only 13 of those states have received any money from the SFSF. These 13 states have received a scant $13 billion, or about a quarter of the total fund, despite the fact that we're now a few months into the Recovery Act.

The problem lies with the state governments, which must request the funding from the Education Department; it's not an automatic transfer. And, it remains unclear why the states haven't requested their money yet. The states which have received SFSF funds so far reach across the political spectrum and include states as diverse as California and Mississippi, so it's not clear if there is an ideological aspect to it. And other delinquent states include states such as Massachusetts and Michigan, states which should be champing at the bit to get any federal money possible.

The CongressDaily article does point the finger at state legislatures, which are responsible for creating state budgets, but to be fair, I think the problem also involves the governors. Under the Recovery Act, only governors can request SFSF funds (an issue clarified by this [7] OMB letter from earlier this year). A good state to look at as an example of this problem is South Carolina, where Governor Mark Sanford is threatening to refuse the state's share of the SFSF. The state legislature just passed a budget [8] with a request for stimulus money, but Governor Sanford is considering vetoing the stimulus sections of the bill. Regardless of how he decides to act, the confrontation explains why South Carolina hasn't requested its SFSF money yet, and probably won't for a little while. And while that might be an extreme example, I'll bet similar budget battles are playing themselves out across the other 28 states which haven't yet requested their SFSF funds.

Fortunately, states still have until July 1st to request the money, so they have some time. It's just strange to see the federal government moving somewhat efficiently (Education Secretary Arne Duncan brags in the article about how his staff can turn around a request in a short nine days), only to see the states move more slowly. It's good that the process is going slowly, in that it's easier to make sure the SFSF money is being used appropriately, but if the money is requested late, it's distributed late, and that will start delay economic recovery efforts.

Image by Flickr user miki [9]. Used under a Creative Commons license.