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Stimulus is On Track in New York — But It’s the Tip of the Iceberg July 2009

Stimulus is On Track in New York — But It’s the Tip
of the Iceberg

By David Shaffer
Senior Fellow, the Rockefeller Institute of Government

David Shaffer

Anybody who expected the federal stimulus to solve New York’s budget problems, and to rebuild our infrastructure, is in for a disappointment. Mammoth as $787 billion seems, there’s a limit to what can happen when the money is spread across 50 states. State and local governments in New York still face years of budget problems, and the new federal money will pay for only about 2 percent of our identified infrastructure needs.



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David Shaffer is a senior fellow at the Rockefeller Institute, focusing on education issues and economic development. A version of this article appeared earlier in NYSAC News, the magazine of the New York Association of Counties.

But the stimulus is having a real impact in New York nonetheless. It’s moving some infrastructure projects ahead of schedule, reviving others that had been postponed, and closing perhaps a third of the state government’s short-term budget gap.

The stimulus bill, formally known as the American Recovery and Reinvestment Act (ARRA), is a package of disparate programs with disparate purposes – two primary ones being to provide fiscal relief to states, and to jumpstart infrastructure projects that will create jobs quickly.

Because of the fine print detailing how the money is distributed, on paper New York makes out better than the typical state in getting fiscal relief. In infrastructure, not so much.

Yet in practice, the fiscal relief wasn’t enough to forestall major tax increases – while New York’s claims for infrastructure funding seem to be moving quite effectively.

Overall, New York expects to get at least $26.7 billion — about 7.6 percent of the $354 billion that ARRA’s formulas divide up among the states. (The rest of ARRA’s $787 billion consists of tax cuts and federal-only programs, like housing at military bases, plus about $40 billion in competitive grants to states for things like educational improvement and health information technology — programs from which New York is likely to receive additional aid eventually.)

On those numbers alone, you could argue that New York is making out pretty well — it’s getting 7.6 percent of the money while having only 6.4 percent of the nation’s population. Indeed, taking the package as a whole, New York stands to net $4 billion more than it would if it matched the national average per capita.

But New York’s extra share isn’t in infrastructure funds. It’s in the “fiscal relief” money that Washington allocated to help states with their operating budgets, particularly their Medicaid and education costs. New York is getting 10.4 percent of the nationwide funds in that area – or about $5 billion more than if the state merely matched the national average.

What’s the reason for this seeming bonanza?

Ironically, it’s the program that both state and county officials see as their biggest budget headache — Medicaid. Congress decided that the simplest way to allocate general fiscal relief to the states was through a temporary increase in the percentage of their Medicaid bills that it pays. Because New York has the nation’s most expensive Medicaid program, it ends up with $11.1 billion of the nation’s total $87 billion in this enhancement (officially known as FMAP, for Federal Medicaid Assistance Percentage).

In fact, New York is literally getting twice as much FMAP money as it would if it merely matched the national average per capita – almost $5.6 billion more. Because New York requires counties and New York City to share the cost of Medicaid, about 30 percent of this federal relief goes to them.

On the infrastructure side, it’s a different picture. New York’s getting about $4.2 billion, or 5.7 percent, of the $72 billion in infrastructure money allocated so far. That’s about $480 million less than if we matched the national average per capita (though New York’s share may go up a bit once programs like broadband deployment are allocated).

Where’s the gap concentrated? In highway and bridge money, allocated under existing federal formulas that favor rural states. New York’s share of the highway and bridge money is 4.1 percent, about $640 million less than if we matched the national average per capita.

But even in infrastructure, there are some bright spots.

One is in mass transit, where the federal formula awards 14.5 percent of the money — about $1.2 billion — to New York.

Another is the speed with which New York state and local officials have qualified projects for aid. Thanks to longstanding state-local plans prioritizing drinking-water and sewer projects, for example, New York has already qualified for about $300 million of its $437 million in clean water funding. It seems on the brink of qualifying all of its $87 million in drinking water projects.

And faced with a 120-day “use it or lose it” requirement for committing the first half of its highway and bridge money, the state actually beat the deadline by a full month. Governor David Paterson’s office says New York now has “the largest highway and bridge construction program ever delivered” in the state.

Still, New York’s long-term infrastructure plans add up to about 50 times the funding provided in the stimulus bill. These needs include $94.7 billion for roads and bridges over the next 20 years, $38.7 billion for water systems over 20 years, $36.2 billion for sewage system needs over 30 years, $10.7 billion for rail over 20 years, and the Metropolitan Transportation Authority’s $29.5 billion five-year capital plan.

So once the stimulus money runs out, the hard work begins.


ABOUT THE ROCKEFELLER INSTITUTE OF GOVERNMENT

The Nelson A. Rockefeller Institute of Government, the public policy research arm of the State University of New York, conducts fiscal and programmatic research on American state and local governments. It works closely with federal, state, and local government agencies nationally and in New York, and draws on the State University’s rich intellectual resources and on networks of public policy academic experts throughout the country.