U.S. House Set to Pass State Aid as Lawmakers Return From Break

U.S. House members returned to Washington from summer recess to act on a $26 billion plan to aid cash-strapped state governments amid concerns the economy is stalling as November’s congressional elections approach.

Lawmakers convened today for anticipated approval of a Senate-passed bill aimed at preventing thousands of layoffs of teachers and other government employees. Republican House leaders oppose the measure.

President Barack Obama, speaking in the White House Rose Garden, appealed for passage. “We can’t stand by and do nothing while pink slips are given to the men and women who educate our children or keep our communities safe,” he said, stressing that the measure is paid for and won’t add to the deficit.

The vote is an opportunity for Democrats to say “Look, we stepped up to the plate. We interrupted our campaign to come back to Washington just for one vote,” said Ross Baker, a professor of political science at Rutgers University in New Brunswick, New Jersey.

The debate over the measure marks the latest flashpoint in a yearlong struggle between Republicans and Democrats over jobs, the economy and the deficit.

Republicans call the state aid a giveaway to please teacher unions and other Democratic constituents, while Democrats are eager for a victory in their stalled jobs agenda. House approval would send the bill to Obama to be signed into law.

Keeping Teachers in Classroom

House Speaker Nancy Pelosi, a California Democrat, said Republicans are opposing “a fully paid-for jobs bill that reduces the deficit and keeps teachers in the classroom and police officers on the beat. Instead, congressional Republicans demean our education and law enforcement officials as ‘special interests.’”

“The American people don’t want more ‘stimulus’ spending,” said House Minority Leader John Boehner, an Ohio Republican. “This spending was a direct order from Washington unions to Democratic leaders.”

Democrats have struggled to realize their jobs agenda in the face of Republican opposition stoked by polls showing mounting public concern over the deficit. Aside from an extension of unemployment benefits and an $18 billion payroll tax cut for companies hiring new workers, Democrats have little to show for what Obama called “our No. 1 focus in 2010” in his State of the Union speech to Congress in January.

The last time the House interrupted an August recess was in 2005 when lawmakers acted in response to Hurricane Katrina, said Fred Beuttler, the House’s deputy historian.

Facing Budget Gap

State and local governments are facing a budget gap totaling $84 billion, according to the National Conference of State Legislatures, triggered primarily by weak sales and income tax revenue.

Unlike the federal government, every state except Vermont is required to balance its budget, forcing spending cuts, tax increases or both -- actions Federal Reserve Chairman Ben Bernanke said last week are contributing to the nation’s sluggish recovery.

State and local governments shed 48,000 jobs last month, bringing this year’s losses to about 170,000, according to the Labor Department.

The bill aims to ease the crunch by providing $16 billion to help cover states’ Medicaid bills, plus $10 billion for teachers.

Saving 150,000 Jobs

Economist Mark Zandi, a former adviser to 2008 Republican presidential candidate John McCain, called the legislation “a very good idea,” estimating it would save 150,000 jobs. He said it made little difference whether the money is earmarked for Medicaid or teachers because the bill will free up funding for other obligations.

It won’t spare thousands more from pink slips, Zandi said, estimating states will still have to cut another quarter-million jobs over the next year. “Even with the $26 billion, they are going to be cutting into real bone,” he said.

The House adjourned last month for its annual summer recess after Democrats concluded the state aid bill was unlikely to surmount a Republican filibuster. Maine Republicans Susan Collins and Olympia Snowe gave Democrats the votes they needed for Senate passage just before that chamber took its recess.

Democrats were forced to make cuts to ensure the bill doesn’t add to the deficit. The measure clamps down on what Democrats call the abuse of tax credits for multinational corporations intended to ensure income earned abroad isn’t taxed twice, by both the U.S. Treasury and a foreign government.

Joint Letter

The U.S. Chamber of Commerce, Business Roundtable, National Association of Manufacturers and others signed a joint letter to lawmakers saying the provisions, projected to raise $10 billion, would end up “reducing the earnings U.S. companies bring back from their foreign operations” with ‘the effect of discouraging business investment and job creation in the United States.”

The bill would rescind funding for one of Pelosi’s priorities, a program offering government loans for renewable energy projects. It would require the pharmaceutical industry to offer bigger debates to the government for drugs sold through Medicaid. Also, advocates for the poor denounced plans to cut food stamp funding by $12 billion, beginning in 2014.

Representative Chris Van Hollen, a Maryland Democrat, told reporters that lawmakers could reverse those cuts later, while saying that would require finding other budget savings.

Some school districts will have made staffing decisions for the new school year by the time the additional funding is available, according to the nonpartisan Congressional Research Service.

Still, “the districts will gladly take the money,” said Dan Domenech, executive director of the American Association of School Administrators. “Would this have been better done in May or June? Absolutely. But better now than six weeks from now.”

The bill is H.R. 1586.

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net

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