Not Enough Revenues To Break The Shortfall Cycle

December 4, 2010

FuseDC blogger Charise puts her finger on an issue I’ve been mulling over. Only difference is that she’s furious and I’m just stymied.

As Charise says, “front-end investments in prevention and intervention measures for youth and families” cost a whole lot less than programs that address our failures to provide the integrated education, training and other services that will get young people into ongoing living-wage employment.

Yet we don’t want to pit investments that will in the long run pay off in higher tax revenues and reduced social spending against programs that provide a safety net for those our system has failed.

Nor, I trust, do we want to opt for investments in youth development if that means neglecting the needs of people who for various reasons can’t become fully self-sufficient. What about seniors who worked at low-wage jobs their whole lives and now depend on meager Social Security retirement benefits? What about individuals with severe physical and/or mental disabilities?

And what about investments in programs that can lift adults out of poverty? These too will reduce safety net spending — and probably needs for spending on young high school dropouts and other “disconnected youth” as well.

So here’s the quandary. We know that robust, well-targeted investments in public education, job creation, workforce development, child care and other poverty reduction programs will help get us out of the current cycle of budget gaps that repeatedly have sent District officials back to the drawing board.

In fact, they’ll generate more revenues to plow back into these investments. But the budget gaps result largely from revenue shortfalls. So we don’t have the funds to turn the spending cycle around — more on prevention and early intervention, less on safety net because less needed.

Look, for example, at what the DC Council faces now. Say it finds the funds to make the adult job training program whole again. That would still leave local funding for the program at only $9.2 million — this when a 2007 Brookings Institution study found that as many as 61,000 low-income working-age residents needed more training and related services.

Say the Council rejects the proposed cut in funding for subsidized child care. That would still leave about 13,000 children on the waiting list for placements.

Parents with very young and/or disabled children would still face a formidable barrier to sustained full-time employment. More child care providers could close their doors, putting yet more people out of work — and likely in need of additional training.

Same story for a host of other investments that pay off in the long run.

The Council can and should find alternatives to Mayor Fenty’s proposed cuts that don’t make a bad situation worse — a new top income tax bracket among them.

But I think the District is in the same situation as state governments across the country. The need to maintain a balanced budget when this deep recession has so depressed revenues severely limits measures that could generate more revenues without further tax increases while also reducing pressures on the safety net.

The federal government doesn’t have to keep its budget balanced. It could shore up hard-pressed state and local programs, including some that have been under-funded for a long time. Instead, we see a range of initiatives to slash federal spending — not just in the long term, but right now.

Not a damn thing we can do about this so far as I can see.


900,000 Jobs At Risk and Easy To Save

December 16, 2009

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 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?