The Senate passed its relatively modest $15 billion “jobs bill” last week, with reminders from Senate Majority Leader Harry Reid that that another legislative package would soon pick up some of the elements missing from this latest round of policymaking. Will state and local aid make it off the list of possible next items—like an extension of jobless benefits and additional tax breaks—into a new bill? At least some national plans for economic recovery may actually depend on it.
With huge budget shortfalls forcing states and localities to lay-off employees and freeze hiring, many governments at these levels are facing seriously diminished capacity to implement needed programs, including those from the federal stimulus intended to ramp-up economic activity. In this vein, a recent New York Times article provides a compelling example of how the default pro-cyclical response by state and local governments plays out perversely in the area of weatherization.
Touted by the Obama administration as a win-all for job creation, enhanced sustainability, and workforce training for in-demand green-related industries, federal policymakers enthusiastically poured $5 billion into federal weatherization efforts through the Recovery Act—over an 11-fold increase from the $450 million allotted in the prior fiscal year. Implementation of these stimulus dollars, however, has been dismally slow, with less than 8 percent of federal funds disbursed to-date as reported by the Times. Even in the best of times, the existing state and local channels for administrating federal weatherization funds may have been stressed by the huge influx of new dollars. It is hardly surprising then that operational challenges are even more severe now during state and local budget crises. The Times notes that at the state-level, personnel furloughs and hiring freezes have hobbled the ability of offices responsible for managing weatherization programs to take rapid action.
The overriding lesson to take away from this example is that even the best laid federal stimulus ideas and intentions can be undermined by lack of state and local capacity to actually implement them on the ground.
Of course, state and local budget cutbacks have other consequences for national recovery as well. Most obviously, when state and local governments respond to shrinking operating budgets by trimming their public workforces, it directly hits national employment numbers. Moreover when steep spending cuts lead state and local governments to lay off employees, cancel vendor contracts, and eliminate funding to non-profit service providers, it leaves numerous individuals and organizations in the region with less money to spend on salaries, supplies, or consumption—all of which directly depresses demand in the regional economy and drags down national recovery.
So as federal policymakers weigh options for introducing more bills aimed at economic recovery, it is worth remembering the importance of both of state aid and local fiscal assistance as stimulus initiatives. Many experts have said all along that aid to states and localities is one of the surest and fastest approaches to getting money into the economy and stimulating needed job creation.