Jumpstart the Economy -- Invest in State and Local Governments

President-elect Barack Obama holds an unprecedented meeting tomorrow with the nation's governors at Independence Hall in Philadelphia. He has called the meeting to discuss the impact of the ailing economy on state budgets and to outline key steps that need to be taken to revive the nation's economy. This gathering provides a historic opportunity for the nation's governors to highlight the monumental crisis that they face as America's economy spirals downward.

This first-of-its-kind event comes less than a week after President-elect Obama stressed the need to create jobs and stimulate the economy by urging fast-tracking for improvements in roads, bridges and other infrastructure investments. He has indicated that he would work closely with the nation's governors and mayors to identify necessary projects "based on national priorities and not based on politics."

Infrastructure projects are important. States also must have additional federal resources to provide the vital health care and family services their citizens need, especially in difficult economic times. Governors across the country are making this case, and many of the nation's leading columnists recognize it as well. Vermont Governor Jim Douglas, who serves as vice chair of the National Governors Association, notes the need for additional Medicaid funding: "The slowing economy is resulting in growing unemployment, increased demand for state services and significant declines in state revenues. As governors work to reduce budget shortfalls and plan for the coming fiscal year, we need to be partners in an economic recovery strategy that includes additional funding for Medicaid and investments in infrastructure."

As local and state government budgets are squeezed, the services they provide become harder to provide, including health care and unemployment programs that give families some needed security during this economic downturn. At a time when families can most use the services and programs that state governments provide, states are least able to meet their responsibilities.

At least 20 states are cutting vital public services that will impact low-income children's or families' eligibility for health insurance or reduce their access to health care services. In Rhode Island, for example, health coverage for 1,000 low-income parents has been eliminated. New Jersey has cut funds for charity care in hospitals. In Florida, Georgia and South Carolina, among other states, funding for K-12 and early education are being sliced drastically.

Cuts like those make life more difficult for families who rely on these programs. That is why 375 prominent economists - including Nobel Prize winners Joseph Stiglitz, Robert Solow and George Akerlof - wrote to Congress last month calling for immediate assistance to state and local governments as part of a comprehensive economic recovery package. They recognize that aid to state and local governments will prevent dramatic cutbacks in the public services that are so vital to our communities.

Extending unemployment insurance and expanding food stamps have to be a part of that aid. As Mark Zandi, chief economist and co-founder of Moody's Economy.com notes: "Extending unemployment insurance and expanding food stamps are the most effective ways to prime the economy's pump. A $1 increase in UI benefits generates an estimated $1.64 in near-term GDP; increasing food stamp payments by $1 boosts GDP by $1.73. People who receive these benefits are very hard-pressed and will spend any financial aid they receive within a few weeks. These programs are also already operating, and a benefit increase can be quickly delivered to recipients. The benefit of extending unemployment insurance goes beyond simply providing financial aid for the jobless, to more broadly shoring up household confidence."

President-elect Obama's decision to meet with the nation's governors is a clear sign that the change he promised in his campaign has already arrived. In contrast to the Bush administration that told state governments "you're on your own" for the last eight years, the new administration is saying "we're in this together." America's governors have an opportunity tomorrow to urge the new administration to do all it can to help states regain their role as a force for creating opportunity and prosperity, supporting and protecting our families, and strengthening our communities.

The governors must make it clear that they face unique and tough challenges during this economic crisis and that the work they do makes our communities better places to live, work and raise a family. They need to make the case that assistance to state and local governments must be a cornerstone of the economic recovery package that Congress and the new administration will address in the coming weeks.

Comments

[Mnemanth]

Invest in local government. Yeah- with what?
Here's a proposition, albeit largely simplified as an example:
First, do away with the federal income tax. Period. (I'm tired of paying for everyone's mistakes!)
Next, state by state, the People devise an across-the-board income tax, taxes on businesses, and taxes on natural resources produced by the state, etc.
County, borough, etc. leaders take a look at the proceeds from these taxes, compare the proceeds to needed services within the state as a whole, and come up with a budget to meet those needs. What's left is partially invested by the state, and part of it is pushed up to the feds.
Not enough income? Well, that state better get to work, or strike up an agreement with their neighbors!
Kids, I'll bet our service needs, infrastructure, and social programs are taken care of, and the feds come to a rude realization of what "budget" actually means.