Congress Gives States More Money; Indiana’s Share Estimated at $434 Million

Just before heading home for its August recess, the U.S. Senate passed a $26 billion mini-stimulus that it struggled with for months. And House leadership decided to call its members back from recess to act on the legislation, which has two main components: (1) $16.1 billion to extend increased Medicaid funding for states (what is referred to as FMAP or Federal Medical Assistance Percentages); and (2) another $10 billion said to be needed to prevent teacher layoffs.

The debate involved both fiscal prudence and the perceived benefit of these state subsidies, as well as the specifics of how to pay for them. Proponents say $9 billion is to be generated from a "provision that closes corporate tax breaks on income earned overseas." Proponents think this ends an incentive to "export jobs overseas." A different – and more accurate – description would be that this is nothing more than a tax increase for businesses that happen to employ workers both in the U.S. and overseas.

The debate took its own politically charged form in Indiana this week, as efforts were made to characterize Gov. Daniels as inconsistent on the FMAP funding issue. He and 42 other governors sought the funding in a joint letter from the National Governors Association, with some qualifying statements, back in February, but Gov. Daniels has consistently pointed out the detrimental effects of the federal government continuing to spend money it doesn’t have while putting this particular legislation in that category.

The federal package would provide an estimated total of $434 million to Indiana: $227 million for six months of additional FMAP funding (an extension of provisions in the American Recovery and Reinvestment Act, aka the stimulus bill) and another $207 million under the teacher funding element. A $227 million subsidy to our state finances would be helpful as the General Assembly prepares for what all agree will be a brutal budget session in 2011. And school districts no doubt would welcome the money as they grapple with their budgets. But, the situation seems to pit practicality against principle. Regardless of your philosophy or political affiliation, the question remains: Why shouldn’t Indiana citizens and businesses who pay federal taxes receive the benefit of money that the federal government insists on distributing?