After months of squabbling, federal spending to stimulate the economy is all set to come to a halt soon. Up until now, the government’s stimulus packages provided valuable support to a struggling economy. But the funding is running out and both federal and state governments are looking at cutting down on public services. It is expected that the administration will have to make additional cuts or find new sources of revenue for fiscal year 2011 to avoid deficit from spiraling out of control.
It is estimated that close to $109 billion has been allocated to states as direct stimulus funding so far. This does not include federal level initiatives to support industries like the huge amount given out to the financial industry to keep it afloat. In the past, states were able to sustain their healthcare and education services in spite of a significant drop in tax revenues. But all that has changed since the recession. The budget cuts are going to drastically reduce funding to these services, much to the ire of the general public.
By 2012, there will hardly be any stimulus money left. States have requested for an extension on the stimulus measures for medical services and the Senate has approved the funding by an additional $25 billion. However, lack of funds has prevented the extension from reaching President Obama for his signature.
States have complained that without the extension, they would have to slash critical services like support for domestic violence and other crime. Similarly, child welfare services could see a major hit. Medical staff like doctors and nurses could also see a significant reduction in their salaries and benefits.
According to a survey by the American Association of School Administrators, an alarming 275,000 education sector jobs may be lost because of budget cuts. Continued budgetary constraints are forcing school leaders across the nation to consider layoffs that would not only deal a blow to public education but also negatively impact economic recovery.
The prospects for both this year and the next one look bleak with the stimulus funding running out. Increasing taxes is one way for states to recover the loss in revenue, but that will be a very difficult decision and will attract a lot of public anger. The only other way the situation can improve is if the economy recovery accelerates and unemployment falls drastically over the next few months.
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