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