Congress is back - and so is the spending debate

NEW YORK (CNNMoney.com) -- Lawmakers come back to work Monday facing a tough decision: Whether it's more important to spend money to keep the economic recovery going or to watch their pennies.

One camp, made up mostly of Democrats, is arguing that Congress must spend to help cash-strapped states and people who are hurting from the downturn.

The other side -- mainly Republicans but also a few fiscally conservative Democrats -- says that adding to the nation's deficit poses an even bigger economic problem. They don't mind helping the unemployed and the states, as long as the measures are paid for.

Lawmakers don't have much time to argue. They'll be in session for a month before leaving for the extended August recess. And when they return after Labor Day, they'll be wrapped up in the November elections and likely will get little done.

There are three pressing issues that lawmakers will wrestle with in July.

Unemployment insurance: More than 2.1 million people are estimated to have lost their weekly jobless checks because Congress has not extended the deadline to file for federal unemployment insurance.

Lawmakers have been trying to pass a bill that would push the deadline until the end of November. But Senate Republicans have blocked the measure, saying they would support it only if it is paid for.

The House approved yet another bill to extend the benefits just before representatives went home for the Fourth of July recess. Senate Democrats plan to take up the measure again after a replacement to the late Sen. Robert Byrd, D-W.Va., is named.

Aid to states: Governors are looking to Congress to help them balance their budgets amid declining tax revenues.

At the top of the priority list is a six-month extension of federal funding for Medicaid. The House removed it from a grab bag jobs and tax extenders bill in order to get the votes needed to pass the legislation. The Senate added it back in, but failed to pass the measure, even after trimming back the cost to $16 billion, from $24 billion.

What happens next is unclear, though state officials continue to lobby lawmakers. The current enhanced federal funding of Medicaid expires at the end of 2010, but 30 states assumed they'd get the extra funds. If Congress doesn't pass the extension, state officials warn they'd have to slash their spending and payrolls.

Also working its way through Congress is a $10 billion bill to help states and municipalities pay teachers' salaries. The bill passed the House last week and awaits action in the Senate.

Temporary Assistance to Needy Families Emergency Fund: The Recovery Act injected another $5 billion into the Temporary Assistance to Needy Families program and created an emergency fund. States have used about half the stimulus money to provide cash grants, food programs, housing assistance and other aid. Another $615 million has funded state-subsidized jobs at companies, nonprofits and government agencies.

The emergency fund, however, expires on Sept. 30, and any unused money must be returned to the federal government. State officials and employers, however, want to see it continue.

The House has passed the grab-bag bill that would extend the emergency fund for a year and inject another $2.5 billion into it. But the legislation has been hung up in the Senate.