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February 23, 2010

Jobs: Bail Out States, Yes Or No?

-- by Dave Johnson

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.

In Big Push Needed For Win 60 Votes For State Aid ... And More Private Sector Jobs, Bill Scher writes of the need for,

...a major grassroots push to secure critical aid for fiscally distressed state governments and help tackle the jobs crisis.

There is good reason for this. The warnings are dire. Just yesterday, for example: Recession Tightens Grip on State Tax Revenues,
The recession can now claim another troublesome record: state tax collections shrank at the end of 2009 for a fifth consecutive quarter, the longest period of continuing state revenue declines since at least the Great Depression...

How dire? States and localities face a 3-year, $469 billion shortfall,

Ethan Pollack, a policy analyst at the Economic Policy Institute, .. estimates the combined shortfalls for state and local governments at $469 billion over the next three fiscal years. "At the best, that can lead to a protracted, slow, jobless recovery, and at the worst, a double-dip recession."

Here is the problem. In this recession shortfalls at the state level - and resulting job cuts - can cancel out federal job-creation efforts. If we want to get out of the recession, we need those jobs! This is why the "stimulus' gave aid to the states. A lot of last year's "stimulus" money - about $87 billion - went to states through the Federal Medical Assistance Percentages (FAMP).

And, of course, now the states are asking for more. Jobs Bill Missing Medicaid Money For States, Governors Call For Change

The $15 billion jobs bill that passed the Senate Monday does not include additional matching funds for state Medicaid programs, but governors are continuing to ask for its inclusion as they look for other ways to plus state budget holes made from Medicaid liabilities.

As I said above: If we want to get out of the recession, we need those jobs!

BUT

There are some problems with "bailing out" states. Let me explain.

I live in California. We, the People of California, in our wisdom, have decided through ballot initiatives to make it impossible to fix our budget problems. We have a "2/3 rule" allowing a minority of legislators to block budgets from passing. So a small extremist minority that hates government is able to block everything, and is trying to force the state into bankruptcy. They insist on cutting the budget but refuse to specify what to cut, all the while insisting on tax cut after tax cut. (Does that sound strangely familiar?)

Did you know that last year, in the middle of our state budget crisis (caused by a revenue shortfall), while firing teachers and gutting essential government services, California gave a big tax CUT to large corporations? Did you know that California won't tax oil companies for the oil they take to sell back to us?

Should the federal government be sending billions of taxpayer dollars to states like California so they can cut taxes on big corporations and keep from raising taxes on the wealthy?

So there are some problems with assisting states during this crisis.

* What if, like California, they use that money to pass tax cuts or give subsidies to a favored few?

* What about states that give breaks and subsidies to big corporations to move jobs there from other states. Should federal tax dollars be sent to these states?

* What about states that act responsibly, like Oregon. Oregon voters recently passed tax increases on the wealthy and corporations. So they have less of a budget shortfall than other states. Should they receive less federal tax dollar assistance because they did this?

Any aid to states should be passed with oversight, conditions and restrictions. They should be required to raise taxes to cover the shortfall in future years. States that act responsibly should receive cash consistent with states that have budget shortfalls. States that give tax breaks and subsidies to lure jobs from other states should not receive this aid. States that refuse to sufficiently tax corporations and the wealthy should not receive this assistance.

Posted by Dave Johnson at February 23, 2010 12:06 PM


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