With promises to defeat terrorism, secure the homeland and stimulate the economy, President Bush presented his $2.2 trillion budget proposal for fiscal year 2004 on Feb. 4.  But, packaged within the optimistic rhetoric was an economic plan that threatens to exacerbate the current state revenue crisis. 

As healthcare costs and unemployment remain on the rise and the economy continues to falter, the states--facing a cumulative budget gap that exceeds $80 billion for FY 2004--are confronted with what may turn out to be the worst fiscal crisis in U.S. history.  However, instead of providing much-needed assistance to the states, the president's budget proposal calls for an additional $1.3 trillion in tax cuts, which will undeniably benefit only the wealthiest Americans, over the next 10 years. 

The recently adopted Congressional budget for fiscal year 2004 rejected tax cuts of this magnitude.  The House committed to $550 billion in immediate tax cuts, while the Senate adopted a $350 billion cut over 10 years.  As the resolution is being hammered out in conference committee, the debate over tax cuts and state financial assistance has just begun.

"Bush’s budget proposal is an immediate call to action," Ed Muir, assistant director of the AFT research and information services department, says.  "The Bush plan contains elements that will increase state costs and lower state revenues.  His plan will worsen the existing situation."

To maintain balanced budgets--required by law in every state except Vermont--state legislatures already have been forced to make drastic reductions in funding for many state programs, including significant cuts to higher education in 13 states.  The billions of dollars that will be eliminated from the budget with Bush’s tax cuts could be used instead to pull state budgets out of the red and to tighten gaps between authorization and appropriation levels.   

Federal Pell Grants are often authorized at a higher funding level than Congress appropriates funds, for example.  The Pell Grant program, which provided more than $11.2 billion to more than 4.6 million students in fiscal year 2002, is the largest source of financial aid for undergraduates.  But despite its impressive scope, the Pell Grant program fails year after year to meet need--mostly due to funding gaps.  For the 2002-03 academic year, the maximum Pell Grant award was authorized by Congress at $5,800 but only funded at $4,050.

"Pell grants, for which the maximum grant today covers only 42 percent of costs, fall far short of need," Christine Owens, AFL-CIO director of public policy, says.  "To restore the Pell grant program to the value it had for students in the 1970s would thus require an additional investment of at least $12 [billion] to $15 billion annually."

If the president's budget proposal is carried through, the Pell Grant program and other similarly important initiatives would be crippled further.

As the budget works its way through conference committee, Congress is still considering several AFT-supported plans, to provide states with some fiscal relief.  Senate Minority Leader Tom Daschle (D-S.D.) has proposed a stimulus plan that would allow for fairer tax cuts and $40 billion in aid to the states to help alleviate costs associated with Medicaid, the No Child Left Behind Act, infrastructure and hometown security.  The Collins-Rockefeller Plan would give $20 billion in aid to the states for Medicaid and the Community Services Block Grant and does not call for any further tax cuts. 

"It is unclear right now where this will go," says Bill Cunningham, associate director of the AFT legislative department.  "We are looking for relief on the order of $40 [billion] to $50 billion in funding for education, federal aid to Medicaid, homeland security, and general revenue sharing."