States to Receive a Cash Advance?

Posted On: July 19, 2010 at 8:18 a.m.

Filed Under: cash advance congress wall street

If a U.S. state has some financial projects that will in turn pump out revenue, should they be allowed to take out a cash advance and then pay it back, much like a payday loan ? That is a proposal given by Chris Edley, as reported in the Wall Street Pit: “Here’s how this would work. States already receive regular federal matching grants to help pay for Medicaid, welfare, highway construction programs and more. For instance, the federal government pays a share of state Medicaid costs, from 50 percent to more than 75 percent, depending on a state’s wealth. The matching rates were temporarily sweetened by last year’s stimulus. But Congress should pass legislation that would allow a state to simply get an “advance” on these future federal dollars expected from entitlement programs. The advance could then be used for regional stimulus, to continue state services and to hasten our recovery. [[ads]] The Treasury Department, which writes the checks to the states, could be assured of repayment (with interest) by simply cutting the federal matching rate by the needed amount over, say, five years. Of course, when Treasury eventually collected what it was owed, the state would have to cut spending or find new revenue sources. But that would happen after the recession, when both tasks would likely prove easier economically and politically” (http://wallstreetpit.com/34477-and-if-this-doesnt-work-lets-try-payday-loans). Is this a good idea? Would it help put states in the right position to make good financial decisions?