Ask any state: Aid bill is a win for all
Media coverage of the $787 billion stimulus package signed Tuesday by President Obama has had an air of unreality - as if people were reporting on a baseball game or a tennis match. Is Obama up or down today? Did the Republicans gain or lose momentum? Meanwhile, as Washington obsesses over the political box score, the economy has been going down the toilet. You get a better sense of what the crisis feels like when you leave the miasma of federal spending and examine state and local governments. Here, the impact of the downturn is severe and immediate: States are required to balance their budgets, so they don't have the Washington option of printing money. They have to raise taxes or cut spending - both of which could make the downturn even worse. Some numbers suggest the dimensions of the crisis. As states are preparing their fiscal 2010 budgets, they are looking at an $84.3 billion revenue shortfall, according to the National Conference of State Legislatures. The largest gaps forecast are in states hardest hit by the real-estate crash: Nevada (37.6 percent budget shortfall), Arizona (28.2 percent), New York (24.3 percent) and California (22.3 percent).
Facing these deficits, most states have no choice but to cut services and payrolls. At least 40 states are planning such cuts, according to the Center on Budget and Policy Priorities. The proposed cuts are scary: At least 28 states are contemplating reductions in public health programs; at least 22 are targeting services for the elderly or disabled. Are these cuts for real? My old mentor Charles Peters, the former editor of The Washington Monthly, liked to invoke the "Firemen First" principle. He argued that at budget time, governments always warned of the direst consequences - they were going to lay off the firefighters, or throw Granny out of the nursing home. And there's probably a bit of that hype now. But experts on state and local government insist that the squeeze is serious. Kerry Korpi, the director of research for the American Federation of State, County and Municipal Employees, says she stopped counting at 350,000 proposed or actual layoffs and furloughs.
It's most dramatic in California where the legislature deadlocked over how to eliminate a $42 billion budget deficit. As politicians bickered, the state moved toward insolvency, stopped paying tax refunds, and may resort to IOU's. "We are dealing with a catastrophe of unbelievable proportions," state Sen. Alan Lowenthal told Bloomberg News. This week the state told 20,000 employees that they will be reassigned or lose their jobs, and announced it would halt $3.8 billion in public works projects.
Against this backdrop of real-world financial crisis out in the states, let's return to Washington and the debate over the stimulus package. The best thing that can be said for the new law - and it's quite a lot, actually - is that it will help state and local governments avert financial disaster. Michael Bird, the chief lobbyist for the state legislatures, says his members got most of what they wanted in the package. He counts at least $125 billion in infrastructure spending, another $150 billion for human services, $100 billion for education. The stimulus plan even has a provision to help the municipal bond market, by easing tax rules for banks that buy them. That could induce $65 billion in new bond offerings, according to estimates by Municipal Market Advisors quoted by Bloomberg News. For states facing a desperate cash squeeze, that's welcome news indeed. But with state tax revenues plummeting, it's impossible to predict whether the new dollars from the stimulus package will be enough to wipe out projected deficits.
Did President Obama have a good day Tuesday when he signed the stimulus bill? You bet he did. But the point that weirdly seems to get relatively little attention is that it was a good day for millions of Americans who are getting hammered by the recession.
© 2009, Washington Post Writers Group