The Center on Budget and Policy Priorities has released a new report focused on the need for swift action to avoid crippling cutbacks in state-level spending next year. I've written repeatedly about the crippling impact of failing to support state governments during this recession, and the problem just keeps getting worse and worse, since the new cuts that will come next year will be on top of the cuts already made. By doing so much less than was needed, the Obama Administration has already done far more to shrink the size of government--at least at the state level--than any conservative Republican might dream of. And the result is that hundreds of thousands of jobs have been lost that could easily have been preserved. Here's a chart from the report, which is meant to emphasize the job loses looming ahead due to state-level budget shortfalls. But look at how pitiful the federal contribution has already been so far:
The CBPP doesn't dwell on that--preferring to look at the jobs that were saved or created--which may be wise for them given their position in the policy advocacy universe. But for us pushing from outside, it's important to keep the big picture in mind, in order to stay focused on the need to change the whole framework of thinking. Here's how the CBBP report begins:
ADDITIONAL FEDERAL FISCAL RELIEF NEEDED TO HELP STATES ADDRESS RECESSION'S IMPACT
Without It, States' Steps to Balance Their Budgets
Could Cost Economy 900,000 Jobs Next Year
By Iris J. Lav, Nicholas Johnson, and Elizabeth McNichol
Summary
States face a serious fiscal problem that could force them to institute additional deep budget cuts and tax increases in 2010, weakening the fragile economic recovery and harming vulnerable children, seniors, and people with disabilities, among others. The federal assistance that states received for their Medicaid programs under this year's economic recovery legislation is scheduled to end with a "cliff" on December 31, 2010, and the assistance states received for education and other services also will be largely exhausted by then. Although that date is more than a year away, the problem is coming to a head now.
That's because states - which continue to face huge budget shortfalls that they must close - are taking steps now to plan their budgets for state fiscal year 2011, which starts on July 1, 2010 in most states. Governors will send their budget proposals to their legislatures between next month and February 2010 in almost all states. The legislatures will have to pass budgets as early as March or April in some states and by the end of June in almost all states. If states do not know they will receive additional federal fiscal relief, they will begin implementing new budget cuts and tax increases by this summer, at the latest.
Presuming they will get no more fiscal relief, states will have to take steps to eliminate deficits for state fiscal year 2011 that will likely take nearly a full percentage point off the Gross Domestic Product. That, in turn, could cost the economy 900,000 jobs next year. 1 Mark Zandi, Chief Economist of Moody's Economy.com, recently warned that these state budgetary actions "will be a serious drag on the economy at just the wrong time." ....
This is a no-brainer, folks. It's a fight we shouldn't have to be waging. Every state and local politician in America should be clamoring for the federal government to spend this money, to help keep schools and hospitals and other essential services operating. It's really just nuts that the left blogosphere should have to be focusing on this. But we do. This is, in effect, a sort of national, slo-mo Katrina playing out right before our eyes. And there's no blaming the Bush Administration for this one.
More from the report:
Deficits pose a particularly difficult problem for states during recessions because nearly all states are required to balance their operating budgets, no matter how bad the state of the economy. And many of the actions that states must take to achieve budget balance in the face of sharply falling revenues - cutting services, laying off workers, and raising taxes - further weaken the economy. Given the importance of encouraging job growth and bolstering the economy in the months ahead, federal policymakers have cause for serious concern that the actions which state policymakers will be compelled to take in the next two years will impede recovery and cause significant economic damage.
Some private forecasters have begun to ask whether the state budget cuts and tax increases that lie ahead will stall the economy. Goldman Sachs estimated last July that the fiscal drag from state budget cuts and tax increases could reduce GDP by 0.6% to 0.7% over the coming year as states move to close their deficits.2 The outlook for state fiscal year 2011 is even grimmer; as noted, actions states will have to take to eliminate deficits for that year are likely to drag down GDP by more than 0.9% and could cost 900,000 jobs.
Zandi recently told the Congressional Joint Economic Committee, "Fiscal 2011 budgets are likely to be more troubled than those for the current year. . . . [States] will be under intense pressure to cut jobs and programs and to raise taxes and fees. . . . For state and local governments to turn into a weight on growth will be a meaningful impediment to the broader recovery's prospects." He recommended that "To avoid this, more federal aid to states for their FMAP and educational obligations may be necessary." Zandi rates federal assistance to state and local governments as highly efficient stimulus; he estimates that every dollar the federal government spends on this assistance in a year translates into a $1.41 increase in GDP that year.
There is also the issue of hardship. To close budget gaps during the recession, many states already have implemented deep and broad cutbacks in education, health care, and most other areas of state expenditures. The cuts have affected vulnerable children, seniors, and people with disabilities, among others. Additional, deeper cutbacks will intensify the problems that these cutbacks already are causing. Thirty states have raised taxes as well.
Let me repeat: This is the very definition of a no-brainer. Are we going to make it official that we have no brains? Is that our intention here? Because that is precisely what we will be saying.
