I, for one, am underwhelmed by the President’s job growth plan. I’d hoped for something bigger, bolder and more targeted to reach low-income people and their communities.
Still, I understand there are political realities here. As New York Times columnist Paul Krugman says, the President probably can’t do much in the face of rock-solid Republican opposition, especially when centrist Democrats are nervous about the deficit–and its effects on their re-election prospects.
One thing the Democratic leadership could do is reframe the objective. Yes, we need to create new jobs. But we also urgently need to preserve jobs in jeopardy. Otherwise, those new jobs we’ve been promised will be offset by new cutbacks.
Cutbacks are a virtual certainty unless Congress delivers additional fiscal assistance to the states–and, through them, to local governments.
According to the Center on Budget and Policy Priorities, 35 states are already facing shortfalls in their current budgets–this despite the fact the budgets were balanced when enacted.
Two major elements of the economic stimulus package will partially fill the gaps–the temporary increase in the federal government’s match on state Medicaid costs, a.k.a. FMAP, and the state fiscal stabilization fund, a one-time infusion of federal funds for education and other key services. Yet we can expect further cuts in critical services–and with them, more job losses.
The Center for Economic and Policy Research reports that state and local governments have shed more than 110,000 jobs in the last two years. Add to these jobs lost by employees of contract service providers and vendors. All these job losses ripple through the economy, as people with drastically reduced or no income cut back on spending.
Looking ahead to Fiscal Year 2011, 32 states already face budget gaps they haven’t yet addressed. CBPP expects the total shortfall to be $180 billion–only $10 billion less than this fiscal year’s. The big difference is that states will have used up most of their stimulus funds for education and other services, and the extra FMAP assistance will end part-way through the year.
So states will make further spending cuts and/or raise taxes. CBPP says these could result in a loss of 900,000 jobs–and even deeper cutbacks in education, health care and programs for low-income elderly and disabled people.
Seems to me that extending FMAP aid and the fiscal stabilization funding is a no-brainer. The basic legislation is already on the books. The funding would avert at least some further fraying of our tattered safety net. And it would prime the economic pump, thus offsetting the spending.
Mark Zandi, Chief Economist at Moody’s Economy.com recently testified that every federal dollar spent on general aid to state governments translates into a $1.41 increase in the GDP. This is a much bigger bang for the buck than the tax cuts the President in talking about.
Extending aid to the states can’t wait until Congress comes back in late January. Governors are already developing their budgets for FY 2011. State legislatures will begin voting on them as early as March. If they don’t know they can count on additional federal relief, they’ll begin implementing cutbacks. Local governments will do the same.
There go 900,000 more workers on the unemployment rolls, drawing unemployment insurance, accessing other benefits, reducing their spending to the minimum.
What will happen to our fragile economic recovery then?