Anyone even marginally familiar with Illinois' budget crisis knows that the state is in dire need of fiscal help. But deficit hawks in Washington keep gutting job bills that would extend valuable stimulus aid to state governments through 2011. In a New York Times op-ed yesterday, University of California-Berkeley law professor Christopher Edley proposed a novel solution to this problem: let cash-strapped states borrow future federal entitlement grant money from the U.S. Treasury.

How would it work? Here's how Edley describes the plan:

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.

That last point is key. The "loans" would ensure that states didn't take money out of the economy, and then gut the federal economic recovery, by cutting spending to offset recent revenue shortfalls.

"I think it is a very good idea," says Ralph Martire, executive director of the Center for Tax and Budget Accountability (CTBA). "The federal government gets a major positive economic multiplier: for every dollar they spend aiding the states, they would get a minimum of $1.36 of private economic activity generated from the state expenditures."  That $1.36 comes from the calculations of Mark Zandi, chief economist at Moody's Economy.

The beauty of the plan politically is that repayment of the loans would be "guaranteed." That's because the Treasury Department could reduce the federal matching rate for those annual transfers when the economy rebounds.  The state, in turn, can take on a heavier load, either by trimming services as demand shrinks or raising revenues to pay for programs citizens want.

In short, the idea provides an alternative to the anti-cyclical economic habits that our country's peculiar federalist system fosters. And it should assuage the concerns of conservative Democrats and moderate Republicans who contend that state governments shouldn't receive additional federal assistance until they tighten their own budgets.

Of course, pure stimulus is a better option. After all, state tax revenues have decreased more during this recession than at any time in at least the past half-century. "Even if states had acted flawlessly," writes John Schure of the Center for Budget and Policy Priorities, "this recession would have hit them hard."

But as we mentioned, many lawmakers in Washington are deficit-obsessed, even refusing to fund an unemployment extension because it would tack a mere $35 billion onto the long-term debt. Edley's plan might be Springfield's best bet for federal help.  We'll be watching to see if any enterprising members of Congress make such a proposal.