A Response to GAO’s Criticisms of State Fiscal Grants

Publication Date: June 2004

Publisher: Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): Nicholas Johnson; Edwin Park

Research Area: Banking and finance; Government

Keywords: State budgets; Federal budget; Fiscal future; Economic projections

Type: Report

Abstract:

In a letter to Senate Budget Committee Chairman Nickles last week, the General Accounting Office expressed several criticisms of the program of direct, flexible grants to states that was enacted in May 2003. These temporary grants, totaling $10 billion, were enacted as part of the Jobs and Growth Tax Relief Reconciliation Act of 2003 and were disbursed in July and October 2003. Together with a similar amount of additional federal funding through the Medicaid program, these grants were intended to help states maintain programs and balance their budgets during the prolonged fiscal crisis.

GAO’s principal criticisms are that the grant payments occurred too late in the economic downturn, that they were not well-targeted to the neediest states, that it is hard to know exactly how states spent the money, and that they may discourage states from reserving funds in anticipation of the next economic downturn. Further, Sen. Nickles used the GAO letter to suggest that recent tax cuts have been more effective than the state fiscal relief in improving the economy.