Aug. 5 (Bloomberg) -- The U.S. Senate passed legislation providing $26 billion to help states pay their Medicaid bills and avoid firing thousands of teachers in a victory for Democrats’ long-stalled jobs agenda.
The chamber voted 61-39 to send the measure to the House. Yesterday, Maine Republicans Susan Collins and Olympia Snowe joined Democrats to shut down Republican stalling tactics. The House plans to vote Aug. 10, returning to Washington from lawmakers’ August recess, to complete work on the bill before the new school year begins.
“These are real people across the country who are breathing a sigh of relief today,” said Senator Patty Murray, a Washington Democrat.
The bill would provide $10 billion to prevent teacher layoffs and $16 billion to help states pay for the Medicaid health-insurance program for the poor. The aid is paired with cuts elsewhere in the federal budget so the measure would reduce the deficit by a little more than $1 billion.
The plan would be financed in part by clamping down on what Democrats called the abuse of foreign tax credits claimed by multinational corporations. The provision is projected to raise almost $10 billion over 10 years.
House Minority Leader John Boehner signaled the plan will meet opposition from Republicans, saying Democrats were “scampering back to Washington to push through more special-interest bailouts and job-killing tax hikes.”
Nariman Behravesh, chief economist at the Lexington, Massachusetts-based forecasting firm IHS Global Insight, called the bill “a step in the right direction” although “$26 billion is pretty tiny in the whole scheme of things.” He estimated the plan could save up to 100,000 jobs.
At issue is state budget shortfalls totaling $84 billion nationwide, according to the National Conference of State Legislatures, brought on by weak tax revenue and increased demand for government services by the unemployed. Almost every state is required to balance its budget, forcing governors to raise taxes, cut spending or both.
Congress has provided more than $200 billion in aid to states as part of President Barack Obama’s economic stimulus package. Snowe said lawmakers are growing impatient with governors’ demands for additional aid.
“I think it’s important to be able to provide this support to the states at a very critical time, but I think it also should be done with the understanding that states are going to have to begin making some tough decisions,” she said.
The federal government splits the cost of running Medicaid with the states. As part of the stimulus package, the administration agreed to increase, through the rest of this year, the federal matching rate by 6.2 percentage points.
The legislation approved today would extend such aid for six months, through the rest of most states’ fiscal years, while phasing down the matching rate during that period.
“It’s much easier for states to adjust their budgets if they have a gradual phaseout of the funding than to have it be very high one day and zero the next,” said Collins.
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