Off the Charts Blog | Center on Budget and Policy Priorities

Despite continuing efforts by Senate Democrats to extend the TANF Emergency Fund, we are just two days away from its September 30 expiration.

This afternoon, several Democratic senators introduced a bill to extend the fund until December 31 and cover the $500 million cost using funds already available for a different TANF fund, known as the Contingency Fund.  Both funds are designed to help states respond to the increase in unemployment and hardship during recessions, but the Contingency Fund — unlike the newer Emergency Fund — has complicated rules that make it difficult for states to obtain money from the fund even in a severe downturn like this one.  Fewer than half of the states qualified for regular Contingency Funds during the last two fiscal years.

Because the extension was paid for with existing funds, it would not have added to the deficit.

In their remarks on the floor, Senators Richard Durbin (D-IL) and Robert Casey (D-PA) noted how important the program has been in their states — placing more than 12,000 people in jobs in Pennsylvania and 26,000 in Illinois.  Senator Durbin asked:  “Will we do everything in our power to put Americans to work?”

Earlier this morning, Florida’s Independent Governor Charlie Crist released a statement urging his state’s congressional delegation and other key members of Congress to extend the Emergency Fund.  Crist noted that the Florida Back to Work program, supported by the Emergency Fund, “has already helped put more 1,000 employers put more than 5,300 Floridians back to work.”

Senator Durbin asked that the bill be approved through unanimous consent.  Unfortunately, Senator Mike Enzi (R-WY) objected, which means the bill is effectively dead.  This puts us one more day closer to the fund’s expiration.

Following up on its September 16 release of national data on poverty in 2009 (which we analyzed here), the Census Bureau today released poverty data for the state and local levels showing that poverty rose in 31 states and fell in none. We analyzed the new data and found that the percentage of people in deep poverty — that is, with incomes below half the poverty line — rose by a statistically significant amount in 28 states in 2009. (See table.) It dipped in one state, Wyoming. Between 2000 and 2009, the share of the population living in deep poverty increased in 36 states.

Half of the poverty line corresponds to an income of $5,478 for an individual and $10,977 for a family of four.

The states with the highest rates of deep poverty in 2009 were Mississippi and Kentucky, where the shares of residents below half the poverty line were 9.3 percent and 8 percent, respectively. The state with the largest increase in deep poverty in 2009 was Colorado, where the deep poverty rate rose from 4.7 percent to 5.9 percent — an increase of more than one-fourth in a single year.

The earlier, nationwide Census figures showed that the number of people in deep poverty hit a record high in 2009, in data going back to 1975. Nineteen million people, or 6.3 percent of the population, were below half the poverty line in 2009, up 2 million from 2008. And 43.7 percent of poor people were below half the poverty line in 2009, also the highest on record.

Since the start of the recession in 2007, the number of people in deep poverty has risen 22 percent, even faster than the increase in regular poverty (17 percent).

Studies have found that deep poverty has a particularly strong effect on the education and development of young children. Even relatively small changes in incomes among low-income young children are associated with significant changes in school achievement.

Today, we sat down with Jim Horney, the Center’s Director of Federal Fiscal Policy, to discuss how federal programs are affected by the start of the new fiscal year.

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Jim, as the start of the fiscal year approaches, can you tell me what that means for federal programs?

Well, first of all, for a number of federal programs, so-called “entitlement programs” like Medicare and Medicaid it doesn’t really have any big effect, because those programs are permanently funded, the end of a fiscal year and the beginning of a new one doesn’t really change how they operate.

What about the other programs?

For the other programs, so-called discretionary programs, which are funded through annual appropriation bills generally just for one year at a time, it makes a big difference, because the appropriations they have for this year will run out, and what’s key is whether appropriation bills providing appropriations for the new fiscal year have been provided, and at what level.

So the new fiscal year begins on October 1st, if I’m correct?

That’s right.

Ok, do the President and Congress usually get the budget in place by October 1?

Unfortunately, they don’t always do that. In fact, in recent years, it’s pretty unusual for all of the appropriation bills to be enacted before the start of the fiscal year.

What are the consequences of letting those bills slip?

Well, if no appropriations are provided at all, it really means that a number of programs would have to shut down. You close down national parks, there are a lot of activities that simply won’t happen. Now, let’s be clear that certain emergency or very important activities like Federal Aviation Administration air traffic controllers — they don’t go home at the stroke of midnight if an appropriation hadn’t been provided. But for many federal programs, if nothing has been done, federal employees can’t come to work, they can’t do their jobs.

Do you expect a government shut down this year?

No, I don’t think that’s going to happen at all. What usually happens is, in, say the normal circumstance where not all of the appropriation bills have been done, Congress and the President will enact a so-called Continuing Resolution that says the agencies which have not received a new appropriation for the new fiscal year can continue to operate at their current levels for a certain length of time, or until the new appropriations have been enacted.

So, you don’t expect a shutdown. What do you expect?

It looks virtually certain that none of the regular appropriation bills for Fiscal Year 2011, the one that starts Friday, will be enacted. But I fully expect that the Congress, between now and then, will pass a Continuing Resolution that will keep all the agencies operating until sometime late in November, early December. And when the Congress comes back in mid-November they will start trying to figure out what to do about the regular appropriation bills.

What happens if they can’t pass those appropriations bills in the session after the election?

Well, if they can’t pass it during the so-called “lame-duck” session, then I would expect they would pass another Continuing Resolution that would keep agencies funded over until next, probably February, and then when the new Congress takes its place in January, they will begin considering the appropriation bills for Fiscal Year 2011, which at that point will already be more than three months old.

Does it matter if the Continuing Resolution goes until next year?

Continuing Resolutions are not the ideal way for agencies to operate, particularly for any length of time. Because when they’re operating on a Continuing Resolution, they don’t know how much money they’re going to have for the full year, so there’s a lot of uncertainty. And for a number of agencies where circumstances have changed and they need more funding for certain programs, they’re hamstrung. They can’t start providing that new level of funding. So, it’s not good. For a few weeks, a month, it’s really not a problem for most agencies, but the longer it goes on, the more difficult it is for agencies to do their work appropriately.

Why can’t the President and Congress get these appropriations bills done on time?

The problem is it’s difficult. We’re in a situation now where there’s very little consensus about anything on the budget, including agreement about what the overall level of discretionary appropriations should be, how much should be available for various programs. And so these disagreements make it hard to get things through, particularly when it’s very difficult to get anything through the Senate, when essentially you need 60 out of 100 votes to pass a bill. So, if there’s political disagreement it becomes very hard to get these things done.

You can download a podcast of this conversation here or on iTunes.

UPDATE, SEPTEMBER 30: We’ve revised some of the figures in this post. Click here for the updated numbers.

In yesterday’s New York Times, Richard Thaler, one of the nation’s top economists, neatly refuted the arguments for borrowing tens of billions of dollars each year to keep President Bush’s tax cuts flowing to the most affluent 2 percent of people in the country.  He then posed a central question:  “whether we want a society in which the rich take an ever-increasing share of the pie, or prefer to return to conditions that allow all classes to anticipate an increasing standard of living.”

As I’ve noted before, over the last three decades a stunning shift in income has taken place in this country, from the middle class to those few at the very top of the income scale.  Back in 1979, the middle 20 percent of Americans had more than twice as large a share of the nation’s total after-tax income as the top 1 percent.  But by 2007, the top 1 percent’s slice of the economic pie had more than doubled and in fact exceeded the middle class’s slice, which had shrunk.

This great income shift means the average middle-income American family had about $9,000 less after-tax income in 2007, and an average household in the top 1 percent had $741,000 more, than they would have had if the 1979 income distribution had remained.  Here’s how this looks in graph and table form:

Fully two-thirds of the income gains in the last economic expansion (2001-2007) flowed to just the top 1 percent.  This is not a healthy sign for a society.  As Professor Thaler urges, we need to decide whether we want to promote still-greater inequality (by extending the high-income tax cuts) or lean against this trend.  Each year the average millionaire gets about $125,000 from the Bush tax cuts, according to the Urban-Brookings Tax Policy Center.  Now seems to be a good time to say enough is enough.

Data on state tax revenues that the Census Bureau released this morning remind us how devastating the recession has been for states’ ability to fund public services — and how important it is that states are closing their shortfalls in part through new revenues, as my colleague Jon Shure noted Friday.

The new data show that revenues in the April-June quarter of 2010 were basically flat compared to the same quarter last year.  Revenues rose just nine-tenths of 1 percent over 2009 levels, less than the rate of inflation.  For the 12-month period ending in June 2010, revenues were 13 percent below pre-recession levels, after adjusting for inflation.

The April-June quarter is the most important period for state tax collections, because that’s when most income tax bills come due.  Unfortunately for states, income tax collections for the quarter were below 2009 levels.  Sales taxes — the other main source of revenue for states — were slightly above 2009 levels but remain far below 2008 levels.

No one knows when state revenues will recover, but it will certainly be years from now.

State tax revenues pay for K-12 and higher education, health care, transportation, and public safety.  While the amount of money that states have to fund these services has fallen steeply in the recession, the number of people whom states are trying to serve has grown.  States have more kids in public schools, for instance, and more people receiving health coverage through Medicaid — due both to normal population growth and to families’ loss of jobs and income in the recession.

Bad as things are, they could have been worse.  State revenues would have been even lower, and the cuts to services deeper, if states from Maryland to Oregon had not taken the politically difficult but economically necessary steps of raising tax rates and eliminating unproductive tax breaks.

Caught between shrinking resources and growing needs, most states have opted for a balanced approach that includes new revenues — instead of relying only on cuts in services.  The latest revenue figures drive home the reality that the crisis states face was caused by a collapse in revenues, not overspending.