Monday, February 28, 2011

Federal revenues and the state budget: What happens when the gravy train goes off the rails?

Wisconsin annually ranks below average when it comes to recouping our share of federal aid. In 2008, for example, the state was 38th in percentage of revenue received from the federal government.

But in 2009, the amount of federal aid available to states increased dramatically due to the passage of the American Recovery and Reinvestment Act (ARRA), and the amount of federal revenue received by Wisconsin increased 26%. Wisconsin did relatively well in garnering our share of the ARRA gravy train--in total, federal aid to the states increased 16%.

While most of the federal aid Wisconsin receives continues to be categorical aid in the form of public welfare assistance, such as Medicaid and Temporary Assistance to Needy Families (TANF), we appear to have gained some ground in terms of discretionary, competitive federal grants. The increase in our public welfare grants from 2008 to 2009 was proportionately less than our overall federal revenue increase, at 20.5%.

Nationally, the total amount of federal categorical and competitive grants to states increased 13% from 2008 to 2009, much of which was attributed to $82 billion in education stimulus aids. The latest issue of Education Week has a great graphic ranking the states by receipt of federal education stimulus funds. Since the passage of the ARRA, $100 billion in federal economic stimulus funds have aided education, including $5.3 billion awarded through six competitive grants, the most noteworthy being the Race to the Top initiative.

Of the 40 states receiving competitive education stimulus funds, Wisconsin ranks 28th in total grants awarded. Our state received $4.1 million in the Investing in Innovation program, to be used to scale-up promising educational programs, and $13.8 million to implement a statewide longitudinal student data system. When our total competitive stimulus winnings are analyzed per-pupil, however, our ranking drops to 30th. The competitive stimulus aid amounts to $20.55 per Wisconsin public school student.

The education stimulus funds are arguably more impactful than the other types of stimulus monies, because over a third of Wisconsin's state budget is spent on education. Our below-average showing in the education stimulus competition means more budget pressure for us than for most other states. On the bright side, when these stimulus funds dry up, Wisconsin will feel the pinch while big winners like Florida and New York may feel a vise grip.

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