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year from FFY 2002-2004, $4.05 billion for FFY 2005 and 2006, and $5 billion for FFY 2007. 50The minimum allocation to each state from these funds is $2 million per fiscal year. The actualannual allocation to each state (and the District of Columbia) is determined by a formula thattakes two variables into account: the “number of children factor” (based on the number of lowincomeand uninsured children in the state) and the “state cost factor” (based on wages in thehealth care industry in each state). The two factors are multiplied to get a product for eachstate, then these are added together to get a total for all states. A ratio is then made of eachstate’s product over the total to determine what percentage of the available funds will go to eachstate. 51The number of children factor is calculated by adding 50 percent of the number of low-incomechildren in the state to 50 percent of the number of low-income children without health insurancein the state. These two numbers are calculated each year using the average of low-incomechildren and low-income uninsured children as reported and defined in the three most recentMarch supplements to the Current Population Survey published by the Census Bureau eachyear. The state cost factor is determined by adding 0.15 to 0.85 multiplied by the ratio of theannual average health care wages per employee for the state over the annual average healthcare wages per employee for all states totaled. In other words, if a state’s per capita health carewages were at the national average, this ratio would equal 1, so adding 0.85 to 0.15 wouldmake the whole state cost factor equal to 1. If health care wages were lower than average, thenthis factor would be less than 1. The average annual wages per employee for each state iscalculated from the wages in the health services industry (SIC code 8000) averaged from eachof the most recent three years as reported by the Bureau of Labor Statistics in the Departmentof Labor. 52SCHIP funds to a state remain available for the state to spend for three years (the fiscal year ofthe award and the next two fiscal years). Any funds that have not been spent during this periodare subject to reallocation by the federal government and possible redistribution to other statesthat have exhausted their funds. 53 The CHIP Allotment Extension (Public Law 108-74) allowedstates to keep unspent 1998-1999 federal allocations through 2004, and gave states additionaltime to spend 50 percent of unused FY 2000-2001 funds (through FY 2004 and 2005,respectively). 54The federal government took back almost $1.1 billion in state SCHIP funds on September 30,2004, the end of the federal fiscal year, that had not been spent by the deadline (these fundswere allocated to states from 1998-2000). In November 2004, 72 organizations, includinghealth systems, associations, and non-profits, signed a letter by the Children’s Defense Fund toall members of Congress asking them to change the law and to restore these funds to statesthis year so states will have the resources to continue their SCHIP programs at current levelsover the next few years. 55 There was bipartisan legislation introduced in July 2004 in both theSenate and the House, and endorsed by the National Governors Association, that would havesent a majority of the unused funds to states projecting SCHIP shortfalls in the next three years,and that would have extended the expiration of the funds, but the Bush Administration opposedthe legislation. 56The Bush Administration wants to use the current unused funds for SCHIP outreach, and saysthat unspent funds from 2002 will be available in 2005 to be reallocated to the states withbudget shortfalls (six states are projected to have SCHIP shortfalls by 2005 and 18 states by2007 under current laws). The amount available in fiscal year 2005 is estimated to be $623million, and 30 states that will have spent all their funds will be eligible for these funds to bereallocated to them. 57 However, if most of those funds are spent on the six states with thelargest shortfalls, not much will be available for the remaining states, causing problems in theB-12