The Federal Agenda: and the Fiscal Cliff Chris Whatley, Washington Director

Overview Will Washington fill the gap? The health reform dilemma What about jobs?

Stimulus redux… Pressure is mounting to pass legislation in the short-term to address the unemployment crisis. Washingtons response would be significantly smaller than the stimulus, but could include a mixture of spending measures and tax cuts, likely in the range of $ billion in size. Much of the funding could come from unused TARP funds.

Prospects for Fiscal Relief… There is a growing crescendo of support from economists, labor leaders, and others for additional fiscal relief for the states. The public response to the stimulus has been underwhelming, but state and local jobs saved have been the biggest driver among the among the 640,000 jobs created or saved by the Recovery Act to date.

How much help… There is unlikely to be enough political will to provide the magnitude of state fiscal relief that was included in the Recovery Act, but it is increasingly likely that enhanced Medicaid payments (FMAP) will continue for an additional 6-18 months beyond the end of This could deliver $100-$300 million in additional fiscal relief to Rhode Island through FY2012.

The health reform dilemma… States may trade short-term fiscal relief for long-term obligations. The bill passed by the House includes $23.5 billion to extend enhanced FMAP through the end of FY2011 (six more months), but states will have to cover over $50 billion ($33 billion net) in new costs over the next ten years. States also lose the ability to reduce Medicaid spending in the face of future budget crises.

Looking to the Senate… All eyes are on the Senate as nothing else can move until health reform is voted out. While the Senate has not included enhanced FMAP in their bill, Senate leaders seem committed to extending FMAP through separate legislation. Compared to the House bill the Senate version would cost states $25 billion over ten years. It also includes much more flexible maintenance of effort rules.

What about jobs… While the stimulus may have blunted the recession and saved the jobs of hundreds of thousands teachers, police officers, and other public employees, there is wide disappointment in the level of job creation in the private sector and a growing political imperative to act.

Tracking green jobs… The Recovery Act included over $100 billion to promote energy efficiency and renewable energy. The Center for American Progress estimated that these investments could yield over 2 million green jobs. However, only 13,000 such jobs have been created through stimulus funds as of the end of October with none of them in Rhode Island.

Green jobs in New England… Connecticut = 37 Maine = 147 Massachusetts = 112 New Hampshire = 38 Rhode Island = 0 Vermont = 24

The coming jobs bill… 1)Infrastructure Funding – Proposal to frontload a short- term transportation bill with up to $200 billion in spending. 2)Small Business Loans – Proposal to use $50 billion from remaining TARP funds to spur small business lending. 3)State Fiscal Relief – $23-$70 billion in enhanced FMAP. 4)Employment Tax Credits/Work-Share Credits 5)Public Works Employment 6)Unemployment/COBRA Extensions 7)Additional Energy Efficiency Funding?

Taking the long view… If the Recovery Act and any new jobs legislation are going to deliver more than just a temporary shot of adrenaline into the economy, state and local leaders will need to work together to use multiple streams of federal funds to implement broader economic development strategies.

Promising sectors… 1)Green Economy/New Energy – While jobs have been slow in coming most spending has yet to happen. In addition to formula funds and loans, the Recovery Act includes over $20 billion in competitive grants for the sector. 2)Knowledge Economy – Over $18 billion in competitive grant funding through the stimulus. Governors have begun to set goals for the amount of funding their states will win. 3)Exports – American exports are rising at a rate of 17% rate while RI exports are rising at 29%. According to the World Bank investments in export promotion yield $40 in new exports for every $1 in public investment.

The River Walk and the Research Triangle…

For further assistance contact CSG Washington Chris Whatley Washington Director Tel (202)