New Beltway Bandits

The conservative economic stimulus compromise now before Congress will hurt cities and states badly, writes Henry Fernandez. What were they thinking?

Dawn breaks over the Capitol as the Senate resumes debate on the economic stimulus package. (AP/J. Scott Applewhite)
Dawn breaks over the Capitol as the Senate resumes debate on the economic stimulus package. (AP/J. Scott Applewhite)

It’s way past the time for America’s governors and mayors to weigh in on the compromise Senate stimulus package now before Congress. The compromise bill protects a small number of conservative U.S. senators while undermining governors and mayors. Expect plenty of governors and mayors to lose their seats over this “moderate” stimulus bill as jobs in their states evaporate, state taxes go up, and local basic services end—all while conservative Senators campaign on how they “held the line” on spending.

Make no mistake, we need a major stimulus package and we need it now. But we should also hold accountable those conservative senators who forced this compromise package upon the country yet will still act like their counterparts in the House and likely not vote for the bill in the end. Conservatives attacked the recovery package continuously, calling for more tax cuts, despite a consensus among economists that spending creates more jobs than yet another tax cut for higher-earning individuals. They followed their economic guru Rush Limbaugh’s lead and derided job-rich expenditures on needed infrastructure, education, and health care as “porkulus.”

My colleagues at the Center for American Progress have written an excellent analysis that more fully evaluates the compromise package and reviews what types of spending are most likely to create the most jobs. So, let’s get back to the governors and mayors and their need to speak up now. The Center on Budget and Policy Priorities estimates that 46 states face budget shortfalls and that “the combined budget gaps for the remainder of this fiscal year and state fiscal years 2010 and 2011 are estimated to total more than $350 billion.”

Unlike the federal government, states and municipalities are not the appropriate places to pay for massive economic recovery strategies. Many have laws that require they balance their budgets through cuts or increased taxes. While Congress and the president can engage in deficit spending when considering the needs of the nation as a whole, for a variety of reasons states cannot.

States also worry about pushing out companies with tax increases when other states don’t similarly raise taxes. And bond-rating agencies would give horrible ratings to a city or state that paid for everyday (general fund) expenses such as salaries for teachers or police officers by issuing bonds or otherwise going into debt. Bad bond ratings would mean that they could never afford to repair a road, school, sewer system, or anything else that requires issuing bonds.

Cities in particular are getting a "triple whammy" because of conservative game playing with the stimulus. Aside from the cuts in the recovery plan that will hurt cities, they also are facing big drops in tax revenues resulting from the twin crises of job loss and foreclosures. Further pain comes from reduced state grants, which most cities rely on to make up for the loss of property tax revenue from the sheer volume of tax exempt property they host (universities, hospitals, jails) to the benefit of the state as a whole. These state grants primarily help pay for education and some other basic city services such as policing, fire fighters, trash collection, parks, and libraries.

While facing the harshest cuts, local governments nonetheless have to respond as this economic downturn hits American families hard. As the number of unemployed increases, cities will face growing homelessness, vacant properties will skyrocket in number, crime will probably go up, and local small businesses will close. Cities will be forced to spend money they don’t have on homeless shelter beds, boarding up vacant properties, health services, police overtime, and covering gaps in education spending. To avoid further hurting local businesses or residents already worried about losing jobs, cities will largely avoid raising taxes.

Yet conservatives in the Senate display a complete lack of concern for the realities local governments face when half a million people a month join the ranks of the unemployed. The cuts from the House bill are borne by local and state government. Here are some examples:

  • The compromise’s largest single change from the House version is a $40 billion slashing of state fiscal stabilization dollars, leaving just $39 billion to directly help states and local school districts. This fund was supposed to help states meet their education funding commitments, support local school districts, and pay for some basic state services. To give a sense of the impact of this massive reduction, California’s current budget deficit alone is $42 billion. Connecticut projects a $4 billion deficit for next year. Arizona faced a $1.6 billion hole this year and faces a $2.4 billion deficit next year. Tennessee currently projects a $900 million deficit requiring the layoff of 2,300 employees.
  • The compromise further guts federal education funding, the primary expense for local governments. Cuts of $1.6 billion in Title I and Head Start that cannot be made up for by local and state governments mean fewer children will be served. How one even gets up the nerve to sharpen their pencil to remove $98 million from school nutrition is unclear.
  • The compromise eliminates funding for the Neighborhood Stabilization Program from the House version with a $2.25 billion cut. The NSP assists localities hardest hit by foreclosures and the resulting hundreds of thousands of vacant properties by supporting the purchase and redevelopment of these properties.
  • The compromise’s $450 million cut in local law enforcement assistance will force cities to make tough choices about protecting neighborhoods. Will cities keep the same number of cops on the beat, or keep libraries, homeless shelters, and senior centers open?
  • The compromise leaves money to build, renovate, or “green” federal buildings (all probably useful endeavors), but removes all $16 billion for public school construction and renovation. School construction is ideal for stimulus purposes because virtually every town in America has a school, so these projects spread jobs to rural and suburban areas where there are few federal buildings, while decreasing long-term municipal costs as new and renovated schools use far less energy.

It may be surprising that senators would make cuts which will mean higher unemployment back home. It is projected that the compromise legislation will result in 430,000 to 538,000 fewer jobs than the House bill. These jobs will of course be in senators’ home states. But never underestimate the willingness of conservatives to repeat the same failed ideas of tax cutting our way to economic growth, while sacrificing jobs back home to the Rush Limbaugh echo chamber.

Let’s be clear, governors and mayors, these cuts will mean that you will lay off large numbers of workers and slash important programs as the economy of your state gets worse and demands increase on the government you were elected to run. If you don’t want one of the jobs lost to be yours, you should push back hard this week against the Senate compromise. Stimulus that grows the federal government, yet requires state and local governments to shrink significantly despite dramatically increased local needs makes little sense. To allow this to happen while senators get to claim credit for tax cuts and any national job growth is political suicide.

Henry Fernandez is a Senior Fellow at the Center for American Progress focusing on state and municipal policy. To read more about the Center’s views on the economic stimulus and recovery legislation now before Congress, please go to the economy page on our website.

More on the Recovery and Reinvestment Act:

Column: A Step Forward, a Stumble Back

Background brief: Recovery and Reinvestment 101

Interactive Maps: Recovery Beyond the Beltway

Infographic: The Stimulus: Four Reasons We Can’t Afford Not to Have One

Interactive: Design Your Own Stimulus Package

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Henry Fernandez

Senior Fellow