Effective Stimulus? Think Local, Mr. Obama

By Jim Rosapepe 

Sunday, November 30, 2008; Washington Post 

Earlier this month, at a citizens meeting in Beltsville, a community in my Senate district, the local police commander was explaining what Prince George County budget cuts could mean in our neighborhoods. "Every time a school crossing guard is unavailable, because of furloughs, layoffs or any other reason," Maj. Dwayne Preston explained, "I have to take one of my patrol officers off the street to fill in." Prince George's police do their best to protect the public. But, as crimes such as burglary rise during recessions, neighbors were understandably concerned.

The first question from the floor was: What could I do to stop layoffs of school crossing guards? My answer was the same one state and local leaders are giving across the country. The state faces a deficit because of the international financial crisis and our country's recession. Gov. Martin O'Malley already had to cut $1 billion from Maryland's six-year transportation budget and $350 million from this year's state operations budget. As the economy deteriorates, more state budget cuts are in the works. Furloughs of state environmental inspectors, college librarians and state police officers, as well as reducing the number of teachers in our schools, are options already on the table.

But there is an answer -- one that would protect schoolchildren in Beltsville and help get the world economy growing again. That is to focus a big part of the fiscal stimulus package being planned by President-elect Barack Obama on aid to state and local governments, putting a priority on schools, police, transportation and health care.

State and local governments cannot print money or, in many cases, even borrow, now that credit markets are disrupted. They can close deficits created by recession only by cutting services or raising taxes. Either of these approaches will only make the recession worse.

In contrast, the federal government can and should borrow money to stimulate the economy. That's how America got out of the Great Depression and how it has rebounded from most recessions since then. After President Bush's $700 billion bailout for Wall Street, both the incoming president and congressional leaders are discussing an economic stimulus package that also could cost as much as $700 billion. The Republicans' top budgeteer, U.S. Sen. Judd Gregg (N.H.), says, "It's clearly got to be a big one." But that doesn't answer the question of what should be in it.

For the federal government to give hundreds of billions of dollars to banks to use the money to pay dividends and buy other banks is clearly inefficient as well as morally questionable. But for the federal government to plug the holes in state and local budgets so school crossing guards, teachers, police officers and nurses are not laid off may be the fastest, most efficient and most productive way to stimulate economy.

No new bureaucracies are needed. The money will go to working people who will spend it in their own communities to pay their bills and buy food, clothes and even cars. It will help more homeowners avoid foreclosure and help more renters buy foreclosed houses.

A stimulus package focused on state and local government will also pay big returns over time. For example, in the past five years, Maryland has invested $20 billion in schools throughout the state to hire teachers and raise standards. That investment has paid off. In the two counties I represent, Prince George's and Anne Arundel, test scores are up 29 percent and 21 percent, respectively. Recession-induced budget cuts are putting those gains at risk. Federal aid to stop such cuts will keep the momentum going, both for the students in school in 2009 and for America's competitive position in coming decades.

The good news is that, as bad as the recession is likely to become, the scale of state and local budget problems is manageable for the federal government. Budget estimates, like stock prices, are moving targets. But the scale of state and local fiscal needs is visible -- probably in the range of $100 billion to $150 billion next year. More than half of that gap is for state governments, which dominate in higher education, transportation, prisons and health care for the poor. Local governments spend more proportionately on police and public schools.

Today, because state governments depend more on income taxes, state revenue has fallen faster than local revenue. But local governments, largely funded by real estate taxes, have been hurt by the foreclosure crisis -- and that pain is likely to get worse. Although $150 billion is a lot of money, in the context of the U.S. economy, it's only about 1 percent of gross domestic product -- and is easily affordable in a $500 billion to $700 billion economic stimulus package. Last week the European Union announced its own stimulus package of 1.5 percent of its GDP.

Most important, unlike bank bailouts and auto loan guarantees, state and local aid does not rely on the business strategies of traumatized corporate executives to be effective. Teachers know what to do. Police officers know what to do. And so do school crossing guards. Keeping them on the job can help put America back to work.

The writer is a Democratic member of the Maryland State Senate