March 10, 2011
Recently, the Center on Budget and Policy Priorities issued a survey of state budget concerns. Their comments about federal assistance to states and localities are not optimistic: “Federal assistance for states, which has been enormously helpful in allowing states to avert some of the most harmful potential budget cuts, will be largely gone by the end of fiscal year 2011, the current fiscal year. . .”
The GOP/TP fiscal jihad that is taking place in the House of Representatives, using H.R. 1 as its present vehicle, cuts valuable and critical financial resources from federal assistance to states and localities:
“The Fiscal Problems Of State And Local Governments Have Also Had National Implications, As Their Spending Cuts And Tax Increases Have Been A Headwind On The Economic Recovery.” Federal Reserve Board Chairman, Ben Bernanke Speech At The Citizens Budget Commission In New York, March 2, 2011.
Challenges For State And Local Governments
A Sampling Of H.R. 1 Cuts
Adversely Affecting States And Localities
• Community Development: H.R. 1 Would Cut The Community Development Block Grant (CDBG) Program From $4 Billion To $1.5 Billion – Nearly Two-Thirds (62 Percent).
• Head Start Early Childhood Education: Head Start Is Providing Comprehensive Early Childhood Services To Almost One Million Low-Income Children And Their Families. The Cut Of $1.1 Billion, Or 14 Percent, Below The FY2010 Appropriation . . . Causing Nearly 218,000 Children Across The Country To Be Kicked Out Of The Head Start Program This Year, A 20% Cut And Close More Than 16,000 Head Start And Early Head Start Classrooms.
• Railroads And Transit: The Bill Cancels Over $3 Billion In High Speed Rail (51 Projects In 22 States) And Surface Transportation Projects (TIGER Grants = 76 Projects In 40 States) That Were Awarded With Fiscal Year 2010 Funds. These Projects Are Estimated To Have Created More Than 100,000 New Construction Jobs.
• Public Safety: The CR Cuts Funding For Justice Department State And Local Law Enforcement Grants By Over $1 Billion, Or 27 Percent (Including COPs, The Office Of Justice Programs And The Office Of Violence Against Women).
With state governments also, by and large, cutting programs and state employee salaries, the GOP fiscal jihad is trickling down to what economists like to call Main Street. Moreover, what is not generally discussed in the media is the fact that states themselves provide assistance and grants to local governments – Main Street as a reality, not a metaphor. As federal aid to states declines greatly for the foreseeable future under GOP plans, states’ abilities to provide funds to localities also will decline, and, let’s face it, many states already are planning these cuts despite the loss of significant federal grant money. Then, of course, on Main Street, community services are cut substantially, everything from law enforcement to school teachers. That’s trickle down economics, RepubliCut style.
And even without this huge round of federal and state budget cuts many U.S. Main Streets, for years now, have been awash in unemployment, community decline, and rising poverty. The combination of state and federal cuts coming in the remainder of 2011 and 2012 will, I fear, dampen the very mild recovery we are experiencing now, and, to carry the metaphor maybe too far, drown the national economy in another deep recession, or worse, including widespread social unrest, making Madison, Wisconsin seem tame.
A week ago, Federal Reserve Chairman Ben Bernanke, addressed the Citizens Budget Commission of New York about this growing problem. As a leading former member of George Bush II’s economic team, Chairman Bernanke is no cheerleader for governmental spendthrifts. Yet, below, he also appears nervous about the massive cuts in the pipeline; I don’t like our Ben nervous . . .
“The recession’s effects on state governments have been substantial. In calendar year 2009, state tax revenues were about 12 percent lower than they had been in 2008; declines in wages, salaries, capital gains, and profits reduced income tax revenues, and sales tax collections dropped along with household and business spending. Reflecting somewhat better economic conditions, state tax revenues for the first nine months of 2010 were 3 percent higher than during the comparable period a year earlier–a relatively modest improvement in comparison to the earlier decline. Meanwhile, on the spending side of the ledger, demand for publicly financed medical care and other public services soared as the economy weakened. Most notably, Medicaid caseloads rose from less than 43 million at the start of the recession in December 2007 to more than 50 million in June 2010–an increase of nearly 18 percent. . .
“In contrast to the sharp drop in state tax revenues, local tax revenues across the country have held up relatively well over the past couple of years. In part, this difference reflects localities’ greater reliance on property taxes. Changes in real estate values typically feed through to tax assessments and property tax bills with a considerable lag; some jurisdictions have also raised their property tax rates to offset weakness in assessed values. The continued softness in real estate prices, however, does not bode well for local government revenues. Moreover, many localities have been hard hit by reductions in state aid, which in 2008 accounted for about 30 percent of local revenues. Indeed, the fiscal 2011 budgets of more than 20 states contained either outright reductions in local aid, changes to revenue-sharing agreements, or cuts in funding for specific programs that are run by local governments–such as education for grades kindergarten through 12, road maintenance, and property tax relief.
“Assistance from the federal government–mainly through the stimulus grants included in the American Recovery and Reinvestment Act of 2009 (ARRA) and the additional Medicaid and education grants provided last summer–has relieved some of the fiscal pressure on states and localities. In addition, many of them have tapped financial reserves–or “rainy day” funds–and pursued asset sales and other one-time actions to satisfy balanced budget requirements. Nonetheless, many governments have laid off or furloughed workers, frozen salaries, and cut other operating expenses. Job cuts have been especially pronounced at the local level, where payrolls have fallen roughly 350,000, or more than 2 percent, over the past 2-1/2 years; nearly half of the loss of local jobs has been in education.
“In addition, state and local governments have cut their capital expenditures. To be sure, construction of highways and transportation facilities has been well maintained over the past couple of years, partly because of the infrastructure grants and the Build America Bond program provided under the ARRA. . .
“Although the economy is recovering, it is still operating well below potential and unemployment remains high. Stimulus grants from the federal government are winding down this year and will largely have ended by 2012. Demands on Medicaid and other social service programs will likely remain elevated. Moreover, reserve funds are low, and the list of unused one-time fixes has been substantially depleted. . .
“. . . the fiscal 2011 budgets of more than 20 states contained either outright reductions in local aid, changes to revenue-sharing agreements, or cuts in funding for specific programs that are run by local governments–such as education for grades kindergarten through 12, road maintenance, and property tax relief.”
GOP/TP Cuts Have Consequences, Too. Republicans like almost any word or phrase that precedes “have consequences.” Holding them to that when they’re the punch line to “have consequences” has generally failed. But extreme budget cuts at any governmental level bode poorly for an economy only slightly on the mend. Recall that despite a mild softening of unemployment last month (and to be revised next month), the ranks of the unemployed do not, by any measure, signal a return to prosperity. The long-term jobless rate is at a record percentage of the unemployed, more than a million of whom have been out of work – and most of them still looking – for two or more years.
A Lexicon. No matter what, this is the place where the rubber meets the road for GOP/TP economic theory which basically features a number of morally and economically suspicious principles. Here are a few of the GOP’s mantras that come to mind:
- what’s mine is mine, and what’s yours is mine too (Hosanna Ayn Rand!)
- cut taxes savagely, particularly on the wealthiest 10%
- cut spending savagely on everything that does not benefit the wealthiest 10%
- privatize everything to benefit the wealthiest 10% at the expense of the dwindling middle class and the poor, and, the corollary, inevitably run privatized public services poorly with the eye primarily on the bottom line
- steal whatever tax revenue received via the middle class and the poor and recycle it through federal contracts, privatization, and old-fashioned theft to the wealthiest 10% (this is called Kleptocracy!)
- financial regulation gets in our way! Period. Paragraph.
- and bringing things strangely in a full circle, almost all tax cuts increase government tax revenue (Hosanna Arthur Laffer, Peter Stockman, Ronald Reagan, John Boehner, Mitch McConnell, etc., etc., ad nasuem)
There’s more, of course, but I’m tired and need to get back on my meds.
