GAO: States Using Stimulus to Cushion Their Budgets

The Government Accountability Office [GAO], in a report released Wednesday said the nation’s poorest and most economically distressed areas don’t appear to be getting a fair shake in the spending of $787 billion in stimulus funds. The report found the stimulus package is being used instead to “cushion” state budgets, prevent teacher layoffs, make more Medicaid payments and head off other fiscal problems.

The following figure shows the distribution by program of anticipated federal Recovery Act spending in fiscal year 2009 for the nine programs discussed in this report.

From Foxnews:

Cash-strapped states have used federal stimulus dollars to close short-term budget gaps and avert major tax increases but generally have not directed the money toward long-term expansion, according to a new report.

The report released Wednesday by the Government Accountability Office, Congress’ investigative arm, found that the $787 billion stimulus package is being used to “cushion” state budgets, prevent teacher layoffs, make more Medicaid payments and head off other fiscal problems.

The Congressional Budget Office estimates that only 10 percent of the Recovery Act funds have been released so far, with about half of the money expected to be spent by October 2010. That dispersed money is being used to prioritize short-term projects and needs over more ambitious goals, the GAO report states.

For example, the GAO said about half the money set aside for road and bridge repairs is being used to repave highways, rather than build new infrastructure. And state officials aren’t steering the money toward counties that need jobs the most, auditors found.
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The report states that the federal money generally has not prevented state governments from dipping into their rainy-day funds or eliminated the need to take further action to balance future budgets.

The GAO also said investigators found repeated examples in which states favored short-term spending over long-term efforts such as education reform. Can we really blame the states though?

Graph: GAO