Iffy Senate outlook for aid package to state governments, local school systems

WASHINGTON – President Barack Obama's Senate allies are taking one last run at advancing what's left of his tattered jobs agenda.

The $26 billion spending measure would help states and local school boards with their budget problems, but its fate is unclear in advance of a key test vote on breaking a GOP filibuster.

The idea is that money — $16 billion to help states with their Medicaid budgets and $10 billion to help school districts avoid teacher layoffs — will help preserve the jobs of public employees, giving a boost to the fragile economic recovery.

A vote scheduled for Monday was postponed until later this week after an analysis showed the measure would add $5 billion to the deficit over the coming decade. Democrats were scrambling to win the votes of Republicans like Olympia Snowe and Susan Collins of Maine, who provided the key votes last month to pass a six-month extension of jobless assistance for the long-term unemployed.

The two elements are leftovers from a larger tax and spending measure that, in significant measure, stalled earlier this summer. The spending is accompanied by tax increases and spending cuts to limit its impact on the budget deficit. That's a step aimed at mollifying moderate Republicans concerned about record budget deficits.

Democrats, who control the chamber with 59 votes, will need to pick up at least one Republican to muster the 60 required to defeat the GOP filibuster.

Collins has been a a stout supporter in the past of giving states help with their budgets and was the driving force behind a $20 billion aid package enacted in 2003. But she's undecided so far on her vote, a spokesman said, citing cuts of unused Pentagon shipbuilding funds.

The main reason the measure doesn't balance is that the Congressional Budget Office concluded cutting spending from old appropriations accounts wouldn't save as much as Democrats hoped.

Failure to pass the measure would be another rebuff to Obama, who requested an extension of additional aid for the Medicaid program in his budget and has belatedly rallied behind the money for teachers as well. Without the help, states will be left with a huge hole in their own budgets, while school systems would have to make greater layoffs than anticipated.

"We will vote to keep teachers and firefighters and policemen from being laid off ... in a fiscally responsible way," said Majority Leader Harry Reid, D-Nev.

Republican leader Mitch McConnell of Kentucky criticized the measure, saying it is a payoff to public employee unions, a key Democratic constituency.

"Our friends on the other side are now in the business of paying for states to hire more workers even if they can't afford it on their own," McConnell said. "It creates a permanent need for future state bailouts, at a time when we can least afford it."

The measure would be financed with about $9 billion in tax hikes that limit the ability of some U.S.-based multinational companies to use foreign tax credits to reduce their U.S. taxes. It would also rescind about $7 billion in previously appropriated money and save 7 billion by curbing future food stamp benefits.