Remember all those noises about how state lawmakers were getting along and we might actually have a state budget passed on time? Well, that just became much less likely. Last night, the U.S. Senate failed to pass a jobs bill that included aid to cash-strapped states, including an extension of higher Medicaid reimbursements from the federal government.
According to Gov. Rendell, who had been counting on the Medicaid money, the defeat of the bill puts an $850 million hole in the state budget. That brings the overall deficit to $2.35 billion, which means lawmakers will be forced to generate more revenue or make steep cuts to state government.
What does this actually mean? Gov. Rendell says that he'll have to layoff 20,000 employees, which is roughly 26 percent of the total workforce. That would include state police officers, teachers, and social workers. It will also require steep cuts in programs, which means non-profits that contract with the state to provide services will also have to layoff staff.
Of course, lawmakers can avoid this scenario by increasing taxes. However, the failure of Congress to approve the aid means that targeted taxes -- like on Marcellus Shale drilling and smokeless tobacco-- probably won't be enough to get the job done. Instead, lawmakers will have to consider increasing a broad-based tax, like the personal or corporate income tax.
Now that Congress has tossed this hand grenade into state budget negotiations, we can expect things to get a lot less cordial. It's impossible to know how state lawmakers will deal with the problem, but we can be sure that it will make it much harder to come to some kind of agreement.