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Stimulus, schmimulus, Part 2

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Illinois

* This is somewhat misleading…

Mr. Obama’s two-year stimulus package includes more than $135 billion for states, to help them pay for education, Medicaid and infrastructure projects. Yet even that sum would cover less than half of the total budget deficits the states will face through 2010, according to the Center on Budget and Policy Priorities, a liberal research and advocacy organization.

Not all of that money would directly help states balance their budgets. The education cash is mainly just pass-through to school districts, so part of that would help relieve upward pressure on state budgets, but wouldn’t get Illinois, for instance, out of its fiscal hole. The infrastructure projects also won’t help the budget crisis aside from the stimulus effect, which would hopefully increase some state revenues. The Medicaid provision will help state budgets, although the formula was rejiggered to benefit states that don’t have the Medicaid problems which we do.

* At the last minute, the Congress restored $8.8 billion to what had earlier been a $25 billion general aid program for state budgets. But it was done in a way that will surely cause much consternation…

States can use the $8.8 billion in flexible block grants to avert budget cuts in education or in other basic state services, such as public safety and law enforcement, services for the elderly and people with disabilities, or child care. These funds can also be used for school modernization, renovation, or repair.

Illinois’ portion of that will be $374 million. But, this line is where the Congress decided to back-door school capital repairs/upgrades into the bill, so the pressure for a piece of that money (from Chicago, particularly) will be beyond intense.

* In the end, Illinois budget-writers probably won’t get much help from that particular budget program. My column last week for the Sun-Times was written before some of the flexible grant money was restored, but I’d make essentially the same points today…

Americans will get a few hundred dollars in tax breaks out of the new federal stimulus program. But Illinoisans will soon discover that the economic stimulus isn’t all it’s cracked up to be when they’re handing over many of those very same dollars to their state government in the form of higher taxes.

The U.S. House’s original stimulus bill would’ve given the states $25 billion to help patch their budget deficits. It was laughably inadequate in the face of one projection that state budget deficits will total $350 billion over the next two years (way higher than the total federal tax cuts), but it was something.

The idea was to help states avoid tax hikes, which could hurt the economy. States would also spend the money quickly, injecting it into the economy at large. […]

States can’t borrow or print money when they run a deficit. Since Illinois’ projected deficit for next fiscal year is as high as $9 billion, it’ll be impossible to cut ourselves all the way out of this crater. Tax hikes are on the way.

In a “normal” year, we couldn’t hope for federal aid. But this is not a normal year. The intense, frightening recession has zapped state revenues and will force more spending on social programs. In that way, we’re like most other states.

But Illinois is a special case. The recent ouster of Rod Blagojevich from the governor’s office finally ended Illinois’ brutal political civil war, which inflamed the state’s budget disaster. The war meant that no problems were ever solved and a whole host of problems were made far worse. And now we’re flat broke.

* We’re not alone…

Kansas tax refunds, employee paychecks and money for schools are all on hold after a showdown erupted Monday between Republican legislative leaders and Democratic Gov. Kathleen Sebelius.

* More…

California lawmakers were told to bring their toothbrushes and prepare for a long day Tuesday, with the goal of passing a budget as the state faces a $42 billion deficit and 20,000 layoff notices were set to go out to state workers Tuesday.

Etc., etc. By not paying enough attention to state budget crises, much of the stimulus plan’s tax cuts will likely be self-defeating.

* Related…

* Possible funds for FutureGen cut by $1 billion

* Stimulus ‘a lot less’ than higher education hoped for

* Stimulus plan won’t fill all potholes in road to recovery

* Rep. Lipinski protests stimulus plan

* Stimulus Support Edges Higher, Now 59%

* So, how much stimulus do we get?

* Illinois’ Stimulus Take

* Economic stimulus vote: ‘Present’

* Stimulus plan money for homeless welcome in tough times

* Illinois Legislators Label O’Hare Expansion Plan as Runway to Nowhere, Tell Congress to Reject Federal Funding of Pork Project

posted by Rich Miller
Tuesday, Feb 17, 09 @ 9:55 am

Comments

Of course, we have our own structural problems here regarding a budget. But the international outlook appears to be worsening as well, which will only make it more difficult for any true relief, which comes from economic growth.

Japan’s economy contracted last quarter by almost 13% on an annualized basis. China, our big-time lender, saw exports fall almost 20% and is pouring money into its own stimulus package, which means they’ll have less cash for T-Bonds. And the governments of Eastern Europe, including Russia, apparently don’t the money to make their nut to the West European banks.

It’s going to be a long, bumpy ride folks.

Comment by wordslinger Tuesday, Feb 17, 09 @ 10:23 am
“Gov. Kathleen Sebelius is demanding the Kansas Legislature join with her in violating state law to use the budget crisis to score political points, top House Republicans told Kansas Liberty Monday.

“The Legislature doesn’t have the luxury of operating outside the law,” said House Speaker Mike O’Neal. “Kansas for years has had on the books procedures a governor can follow in times like these, but she’s refused to exercise those options, to the detriment of the state. She’s better than that. It just seems she’s going out of her way to make people upset with the Legislature.”

The latest budget drama began Monday when Sebelius called a meeting of the State Finance Council to seek authority for a $225 million certificate of indebtedness to cover a cash flow crisis.

That meeting ultimately was postponed, Republican legislative leaders said, when they made clear to Sebelius that the Legislature couldn’t authorize additional debt.”

Basically, she knew for months about the financial crisis but chose to do nothing in order to force her “need” for additional debt and so she could avoid cutting expenses, and the media complied by publishing scare stories about tax refunds not being sent out and not being able to the poor to make the legislature look bad.

Link:

http://kansasliberty.com/liberty-update-archive/2009/23feb/sebelius-short-term-solution-to-cash-flow-problems-would-place-legislature-on-a-collision-course-with-state-statute

Comment by SAM Tuesday, Feb 17, 09 @ 10:28 am
>* Illinois Legislators Label O’Hare Expansion Plan as Runway to Nowhere, Tell Congress to Reject Federal Funding of Pork Project

Wasn’t this third airport at Peotone supposed to make things like this unnecessary? That and fewer people are flying so there should be fewer planes landing at O’Hare.

Comment by Segatari Tuesday, Feb 17, 09 @ 11:02 am
I love posts like this because it requires people to move away from “Stim good because Barack says so” or “Stim bad because GOP says so” mindsets.

Unfortunately, that usually makes for light commenting.

Comment by Rich Miller Tuesday, Feb 17, 09 @ 11:16 am
Wasn’t this third airport at Peotone supposed to make things like this unnecessary? That and fewer people are flying so there should be fewer planes landing at O’Hare.

First sentence: You mean the 5-gate, one-runway with a windsock starter airport?

Second sentence: If air travel is in a downturn, it would seem to argue against building new airports more than expanding existing ones.

Comment by Six Degrees of Separation Tuesday, Feb 17, 09 @ 11:34 am
Ten years from now, whem economists analyze why the 2008-2012 depression wasn’t avoided, they will look at the stimulus bill - what it did and didn’t do - and ask the question — what were they thinking?!? The contraction of state government budgets (or the taxes raised to avoid such contraction) will play a huge part. The wrong kind of tax relief (subsidizes purchases that likely would have been made, instead of slashing payroll taxes) will figure in there, too. Democrats and Republicans will share equally in the blame, at least in the eyes of objective economists. The only answer will be - they just couldn’t help themselves, it’s in their natures.

Comment by Anonymous Tuesday, Feb 17, 09 @ 11:38 am
Touche, Six. lol

Comment by Rich Miller Tuesday, Feb 17, 09 @ 11:52 am
The budget of the O’Hare airport is bloated beyond belief. It is a continuing example of how Da Mare funnels big projects to a select few with a wink and a nudge regarding the final costs. Ultimately it is the airlines/passengers who pay for the airport and its improvement while providing continuous stream of $$ to the well connected.

That said, the plans they are working toward will increase the capacity of the airport primarily during bad weather. This reduces the delays in the air and allows the aircraft to get down safely without long delays. The Peotone airport was and is a political boondoggle. If built it will provide a base for more political hirings (which is why the pols keep wrestling for control) and would complicate the airspace in the area.

We have all the airports we need in the region. All you have to do is connect Gary (underutilized) to Midway (underutilized), O’Hare, Rockford (underutilized) and Milwaukee with a high speed connection and voilia you have transportation nirvana. Proper design of the rail links would allow commuter traffic as well as airport to airport connections as a bonus.

Remember the millions spent on Mid America Airport? It is a ghost town. Let’s not take all that farm land off the tax rolls to create empty runways. If you build it they will not come unless there is a business case for it. Currently there is none.

Comment by Plutocrat03 Tuesday, Feb 17, 09 @ 12:35 pm
This weekend’s Wall Street Journal plays the $1 billion for FutureGen as pretty much a done deal.

Comment by Niles Township Tuesday, Feb 17, 09 @ 12:36 pm
===Etc., etc. By not paying enough attention to state budget crises, much of the stimulus plan’s tax cuts will likely be self-defeating.===

And this is primarily why funneling a significant portion of stimulus funds for tax cuts is asinine. And an overwhelming number of economists have indicated that state aid results in more bang for the buck.

The GOP, at least on the national level, is bereft of ideas.

Comment by The Doc Tuesday, Feb 17, 09 @ 12:45 pm
The major problem is that the stimulus bill became a catch all for every kind of spending you could think of. All spending is not stimulative.

There should have been a series of bill which could have had a serious discussion before passage. Assistance to states could have passed as a bill on its own. Assistance to states for operation fund issues just pushes the day of reckoning from today to tomorrow while magnifying the size of the future problem. (We in Illinois see how well that works)

In many case the spending in the package rewards stated and communities for not doing their jobs. Schools, roads and bridges should have been maintained with as much local contribution as possible. The money will be spent in an inefficient manner, but the problems will still be there. (Milwaukee is slated for a big chunk of $$ to build new schools when their student enrollment is falling and there are vacant schools in the system. Do they even need a new school?) Mayor Daley has not release the full extent of his wish list, but has made it known that the bidding process should be streamlined/suspended. Is that a portent of stimulation or rip off?

I glumly agree with anonymous about the result of this pork pie passed by the Congress.

Comment by Plutocrat03 Tuesday, Feb 17, 09 @ 12:50 pm
===Assistance to states for operation fund issues just pushes the day of reckoning from today to tomorrow while magnifying the size of the future problem.===

Not all of it.

Remember, there is a severe crash in state revenues throughout the country brought on by the recession. That recession will eventually end. The idea would be to help tide the states over. Now is not a great time for dealing with structural issues on top of a temporary revenue crisis.

Comment by Rich Miller Tuesday, Feb 17, 09 @ 12:54 pm
Is anyone else upset with the bill signing in Denver? I know other pols did this but isn’t this just plain wasteful? The campaign is over, go to work in DC. I would hope the POTUS would at least ‘meet expectations’ in the first six months of his term.

Comment by highwayman Tuesday, Feb 17, 09 @ 12:56 pm
As far as Doc’s economists, I think we can find an equal or larger number that have the opinion that tax cuts on companies and individuals will have a bigger bang for the buck than most kinds of government spending.

All the National Democrats did was to start with a concept of a stimulus and lard it up with all kinds of spending which will do nothing but consume the money thrown in those pots.

We could at least read the Hippocratic Oath and focus on the phrase “never do harm to anyone”

It is my belief that this bill will create more damage than it will do good.

Comment by Plutocrat03 Tuesday, Feb 17, 09 @ 12:58 pm
===I think we can find an equal or larger number that have the opinion ===

Sure you can. The problem is you need truly hard facts to back up your case. And the numbers I’ve seen don’t support your contention.

Comment by Rich Miller Tuesday, Feb 17, 09 @ 1:06 pm
===We could at least read the Hippocratic Oath and focus on the phrase “never do harm to anyone”===

Not sure what you’re referring to, Plutocrat, but I’ll contend that reducing aid to states will undoubtedly cause great harm to a large swath of people.

What’s your solution, other than tax cuts? Businesses are failing left and right because no one is spending. Job losses mount, which results in even less spending, and the vicious circle continues. The government needs to spend because no one else can. And tax cuts will be earmarked for paying down debt or towards savings for those who can afford it. And neither is stimulative.

While I may not agree with all of the initiatives of the Obama administration, at least he’s putting something forward.

Comment by The Doc Tuesday, Feb 17, 09 @ 1:46 pm
Government spending (yes, SPENDING) is the entire point of a stimulus. We can quibble about what they are spending the money on, but the simple fact remains that pumping money into the economy will result in purchases for goods and services.

Tax cuts are also spending. Why can’t the Republicans ever get these simple facts straight?

And Rich’s point about federal funds to stabilize state budgets is spot-on: those states that are forced to cut services or raise taxes (or in Illinois’ case, both), will negate the benefits of the federal spending in the first place. The logical disconnect makes my head explode.

The whole bill is imperfect, but let’s get past the stale talking points on spending v. tax cuts because they are both means to SPEND federal money.

Oh, and by the way, I welcome the GOP’s newly discovered passion for deficit reduction. Where’s that been for the past decade?

Comment by 47th Ward Tuesday, Feb 17, 09 @ 2:02 pm
===Where’s that been for the past decade? ===

LOL. You might take that back to 1981.

Comment by Rich Miller Tuesday, Feb 17, 09 @ 2:07 pm
==Oh, and by the way, I welcome the GOP’s newly discovered passion for deficit reduction. Where’s that been for the past decade?==

Who do you think the contemporary GOP is? Bill Clinton?

Comment by wordslinger Tuesday, Feb 17, 09 @ 5:54 pm