Introduction

On February 17, 2009, the President signed the American Recovery and Reinvestment Act (ARRA). This legislation seeks to reverse the downward economic spiral in which consumers are spending less, causing companies to cut back on production and lay off workers, leading to further reductions in purchasing by businesses and households, continuing the deepening spiral. In an effort to break this cycle, the ARRA injects $787 billion into the national economy and targets it to be spent quickly, thus increasing demand for goods and services and encouraging economic growth.

Because state governments across the nation are facing large budget deficits, Congress recognized that one of the most efficient ways to stimulate the national economy would be to provide aid to state and local governments that would otherwise be forced to lay off workers or cut back on funding for service providers, who would then be forced to lay off workers and reduce spending in the local economy. By giving state governments the capacity to cancel layoffs and continue purchasing needed goods and services, this element of the stimulus package will quickly increase demand in the economy. This aid to states both helps people directly by supporting quality education for children, public safety for local communities, and access to health care and other safety net services for those who need them, and helps the national economy by increasing economic activity.

This temporary fiscal relief will not solve the long-term structural budget problems that are faced by many states, including Massachusetts. Before the national recession began, Massachusetts faced serious structural budget problems.¹ These structural problems will ultimately have to be addressed by long-term changes in state revenue or spending policies, or both.

In the short term, however, states need to use the federal fiscal relief as it was intended: to avoid making cuts that would reduce overall economic activity. While states may be tempted to use some of the federal fiscal relief to reduce their reliance on reserves, such actions would undermine the purposes of the ARRA and slow the national economic recovery. If the federal fiscal relief simply allows states to reduce the use of their own reserves, then it would not be increasing overall economic activity – it would just be a new source of money for spending that the states would have done with their own reserves. That would suggest to future policymakers that aid to states is not an effective form of economic stimulus, and, more significantly, such a misuse of ARRA funding could significantly undermine the ability of the law to restore strength to the national economy.²

This MassBudget Brief provides an overview of provisions in ARRA that will most directly affect the state, municipalities and residents. The brief is organized according to MassBudget categories,³ except for nutrition programs, which are grouped together.

Because Massachusetts is in the midst of dealing with a looming budget deficit in Fiscal Year (FY) 2010, elements of ARRA that will help the state directly address budget issues are highlighted in the text. In total, we estimate that ARRA will provide Massachusetts with approximately $4 billion in total that will help address budget gaps in FY 2009 through FY 2011.⁴ This amount could be lower if Medicaid funds are at the low end of the estimates described later in the brief.

For each item, this brief:

• Describes the total ARRA appropriation;
• Estimates the funding level for Massachusetts;⁵
• Outlines how funds were allocated among states;
• Assesses whether the funds will help with the state’s current budget crisis; and,
• Describes how the funds can be used and what Massachusetts has to do to receive them.

The question of whether or not programs in ARRA will help Massachusetts close its budget gap can be interpreted in different ways. For example, a source of federal funding that goes directly to a municipality does not directly help the state’s budget situation. However, if those locally allocated funds are spent on a program that has received or could receive reductions in state funding, it could be argued that the local money is indirectly helping the state situation. For the purposes of this brief, however, federal funds are only considered to help the state address its budget gap if they go directly to the state’s General Fund or are otherwise allocated by the state through the budget process.

Because the federal government is still in the process of determining how the programs within the stimulus will be implemented, all estimates and analysis comes with the caveat that details are subject to change. However, the following descriptions are intended to provide the reader with a better sense of how ARRA will impact Massachusetts and its residents.

 1. For more information on long-term contributors to the state’s budget gap see MassBudget’s Report, “Substantial Surpluses to Dangerous Deficits."

 2. For more information, see the Center on Budget and Policy Priorities brief on this topic.

 3. For a chart of how MassBudget categorizes government spending, see the preliminary analysis of the Governor’s FY 2010 budget.

 4. The $4 billion estimation is the sum of the increased Medicaid reimbursements, Education and Flexible block grant, TANF emergency fund and the Child Care Development Block Grant, each of which is described later in the brief.

 5. Allocations to Massachusetts are, in most cases, estimates and subject to change. For programs such as Medicaid, TANF and Child Support incentives, the Massachusetts allocation is based on state actions that are not yet known. In these cases, the brief presents either a reasonable range or an upper bound for funding to Massachusetts.