Red and Blue
Red & Blue Politics: The States and the Stimulus
Jan 11, 2010
Michael Krull and Arnie Arnesen
RED
The States and the Stimulus
By Michael Krull
“…a wise and frugal Government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government…” Thomas Jefferson, First Inaugural Address, 1801
As an Insider Iowa reader and follower of this Red and Blue series, you are likely aware of the twists and turns in Washington, DC, when it comes to issues such as the healthcare debate, cap and trade, and the economy, among others. While the focus has been on Washington, there is plenty to worry about in Des Moines, especially as the legislative session begins this week.
The $787,000,000,000 stimulus bill passed early in 2009, pushed huge amounts of money from the federal government in Washington, DC, to the states. This was a mistake. Rather than governors and state legislators dealing with the fiscal problems that arose from a weakening economy and sinking revenues, the money from Washington allowed governors to ignore these budget problems and saved them from having to make difficult decisions about spending and program priorities. It was basically supposed to be a short-term bail-out for the states in the hope of a quick recovery.
For example, according to federalreporting.gov, Iowa is authorized under the $787,000,000,000 stimulus bill to receive up to $2,350,643,024, of which just over $79,350,000 has been sent to provide funding for 55 projects in the state. That works out to $26 per capita.
Generally, the opposite is true: Governors fault Washington, DC, not for giving them money, but for passing unfunded mandates, defined as regulations or conditions for receiving grants, that impose costs for which they are not reimbursed by the federal government. These can be in myriad different areas, from the Clean Air Act, to housing programs, to Medicaid, to labor mandates – it goes on-and-on.
Many believe (I think rightly) that these federal mandates violate the Constitution’s Tenth Amendment, which states that, “powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” The present healthcare legislation being reconciled in the Congress is chock full of unfunded mandates which will only add to state budget woes.
How to get rid of these unfunded mandates? States should simply say to the federal government, “If you do not provide funding for these requirements, we will not do them. We are within our Tenth Amendment rights to refuse.” All well and good, but the states should apply the same test to themselves and ask the counties, cities and towns within them to provide a list of unfunded mandates that their state legislatures have passed and make a real effort to undo that spending they have passed along.
Back to Iowa. The failure of the governor and legislative leaders to anticipate the effects of a steep economic recession and a plunge in Iowa revenues given all of the clues around the country – indeed around the world – boggles the mind. The result of this abject failure was that Governor Culver was forced in October to order a whopping $565 million in cuts to state spending (note that this is roughly a quarter of the funds authorized for Iowa under the stimulus).
Yet some in the Culver government saw what was taking shape well in advance, and, according to the Des Moines Register, state department heads gave the governor in November 2008 a number of ideas to trim state spending; this was nearly a year before he was forced to make the huge cuts. Had the governor heeded these warnings and communicated the need to make these spending cuts to the state legislature at the beginning of the 2009 legislative session, the legislature could have used these calculations when developing the present budget, thus avoiding the drastic cuts of October. Or, perhaps, he could have requested additional stimulus funds.
Might the governor have additional information from state department heads and is not sharing it? It is expected that the legislature will have to cut another $500 million from the coming year’s budget, which begins in July. But, the legislature cannot begin working on the budget until Governor Culver releases his proposals – why hasn’t he yet done so (he has until the end of January to share his proposals)?
Why, in the face of one of the worst budget crises in state history, has Governor Culver not been working with state legislative leaders of both parties and have already begun to craft state spending and program priorities in light of decreased revenues?
Governments are notorious for their sclerotic nature and lack of innovation and imagination in the face of crisis. Wishful thinking will not cut it in the present environment. Facing reality head-on is the only responsible thing to do when one holds the public’s trust as an elected official.
To paraphrase White House Chief of Staff Rahm Emanuel, you should never waste a good crisis. The state should use the budget challenges to re-order priorities, combine functions such as purchasing, and eliminate obsolete or unneeded programs or departments, and do the other things that a business would normally do when faced with a similar problem, in order to position the state for the future.
The silver lining of this budget crisis is a vision of a future Iowa that comes out the other side as a more competitive state with a lean and more efficient government that provides higher-quality services at lower cost.
Do the state legislature and the governor have the vision and the courage to face reality and make these decisions?
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Michael Krull is a graduate of Luther College and Iowa State University. He has worked on disaster relief for the State Department, a major Washington, DC public relations and political consulting firm, and is currently working for American Solutions for Winning the Future. He is a member of the Council on Emerging National Security Affairs.
BLUE
By Arnie Arnesen"Better the occasional faults of a Government that lives in a spirit of charity than the constant omission of a Government frozen in the ice of its own indifference" - FDR
Do you want the good news or the bad news? Let’s start with the good news. The tepid economic stimulus package rolled out by the Obama administration kept many states from slashing budgets and raising regressive taxes to unthinkable levels to fill cavernous budget gaps. If you think things were bad for governors and legislators around the country you don’t know the half of it… state tax receipts saw the “steepest decline on record” just as the demands for state services went through the roof (You know things like Medicaid that reflect our grotesque failure to address our costly ineffectual health care system), state pension gaps grew because of shaky investments and the convenient shell game played by state and local government to delay requisite annual obligations and the cost for essential materials necessary for infrastructure repair and construction continued to hit slightly lower but still exorbitant prices because of competition from China whose insatiable appetite for all things cement is fueled by 8% growth in 2009. Did I say 8% growth…that’s right boys and girls. As Time magazine pointed out: "A year ago, many people considered China's ambition to guarantee an economic growth rate of 8 percent a day dream, but China has succeeded in realizing its ambition. China maintained the highest growth rate among the world's major economies....” But I digress. According to the AARA (American Recovery and Reinvestment Act) the stimulus did preserve 255,000 education jobs and 63,000 jobs in other areas through Sept. 30. I am trying to be upbeat about the job piece of the state component of the recovery act but when you realize that we lost “only” 85,000 jobs in December alone, 318,000 jobs saved through September are nothing to crow about.
As we look to 2010 and 2011 the economic picture does not look much better. According to Elizabeth McNichol and Nicholas Johnson of the Center for Budget and Policy Priorities “48 states have addressed or still face … shortfalls in their budgets for fiscal year 2010, totaling $193 billion or 28 percent of state budgets — the largest gaps on record.” What does that mean for states? It means that the Fiscal Stabilization Fund in the Recovery Act will end before most states have recovered forcing painful cuts and tax increases just as the economy is turning around.
What’s an Obama administration to do? Make the case to the American people that if the dueling Rs and Ds could find the will and the billions to bail out Goldman Sachs and their Wall Street ilk and pay for two wars even as they expand one, they must not show "indifference" but revisit state fiscal relief and expand essential work projects that create jobs at home and pay state bills. In light of the recent events in Detroit, Congress will predictably jump to spend millions, if not billions, on questionable airport security measures to combat the next underwear bomber but will delay, deny and endlessly debate the more critical need, to support the 50 engines of future prosperity, the states.
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D. Arnie Arnesen is a radio and TV commentator based in New Hampshire. She has lectured at Harvard, Dartmouth, UNH, SNHU, Vermont Law School, St. Olaf, and other colleges. She is a former NH Legislator and a former democratic nominee for Governor and Congress. Arnie has been a Fellow at the Kennedy School of Government's Institute of Politics at Harvard and has trainied women who want to run for office throughout the United States and future NH Leaders. You can hear Arnie every Wednesday on Talk of Iowa on IowaPublicRadio.org and every Friday on the Dan Mitchell Show on WKBKam.com. politicalchowder@gmail.com
