Federal funding in limbo, U.S. states weigh paying for programs

Reuters

By Lisa Lambert

WASHINGTON, Oct 11 (Reuters) - As the battle in Congressover the U.S. budget grinds on, states say they may soon have tochoose between putting their own dollars into federal programsfor residents or letting vitally important services such as foodstamps lapse.

"States have thus far managed to avoid closing or suspendingmost programs and services by using carry-over funds or, in somecases, by using state spending to fill in for missing federaldollars," the bipartisan National Governors Association said ina letter sent to congressional leaders on Thursday. "However,states are not in a position to be the bank for the federalgovernment,"

The letter, which was copied to President Barack Obama,asked for reimbursements for expenses that states might incurwhile funding for federal programs is in limbo. This includedpaying for personnel whose salaries are supported, at least inpart, by federal grants.

Programs such as Women Infants and Children, which providesfood assistance to mothers and their offspring, have provisionalfunding measures until the end of the month. But states areuncertain about how much money is available.

States also do not know if they will be reimbursed shouldthe shutdown extend past Nov. 1 and they step in to cover thecosts, according to the National Association of State BudgetOfficers.

States administer numerous federally funded programsincluding food stamps, bearing part of the operational costs anddealing directly with the recipients.

Several states have already furloughed federally fundedemployees and others notified workers of potential layoffs.Michigan this week sent out notices it could furlough 20,000people after Oct. 31.

Connecticut's Democratic governor, Dannel Malloy, venturedto a Head Start center in Bridgeport on Wednesday to announcethe state would spend $800,000 to keep the federally fundedpreschool operating. Head Start provides education and care toyoung children from low-income families across the country.

"Obviously, Connecticut cannot pick up the slack for theentire federal government," Malloy said at the event. "But wecan try to do what's possible in the short term to make sure ourmost vulnerable citizens receive the services they need."

States' revenues only returned to their pre-recession peaksat the end of 2012. Almost all states were forced to slashspending, hike taxes, raid reserves and turn to the federalgovernment for help during the 2007-2009 downturn. Now they arefocused on strengthening their budgets in case another economicstorm strikes.

START OF CRISIS

Republican demands to defund or delay Obama's healthcarereforms as a condition of passing a broad government spendingbill led to deadlock, triggering a partial government shutdownwith the start of the new fiscal year on Oct. 1.

Negotiations intensified on Friday, with Obama, a Democrat,meeting with Senate Republicans at the White House and speakingto House of Representatives Speaker John Boehner by phone. HouseRepublicans will meet at the Capitol on Saturday to discusstheir options.

Besides arguing over ending the shutdown that is 11 daysold, political leaders are focused on raising U.S. borrowingauthority and possibly finding longer-term government spendingcuts.

Thirty states have Republican governors.

Kansas has "$430 million in the bank," Governor SamBrownback, a Republican, said in a statement on Friday. "Thisstrong ending balance provides us with flexibility in cash flowmanagement that we can use to minimize the effect of the federalgovernment shutdown on programs critical to the citizens ofKansas."

NASBO, though, said not all states have enough cash on handto "backfill" federal programs and some states have looked intoselling short-term assets.

Pew Charitable Trusts said states may struggle with tappingreserves to backfill, as well, as 10 states require approvalspecial legislative approval to use rainy day funds, and fourothers can only use reserves for a shortfall or similar problem.

Pew said after sequestration a handful of states enactedpolicies to stave off potential federal shortages, includingVermont, which set aside $4 million from its recent surplus.

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