The Stimulus and State Budgets

The Wall Street Journal had a recent editorial on the impact of the stimulus on state budgets – noting that while the legislation create a one-time bailout to states, the costs, mandates, and new programs created as a result will be a long-term burden to taxpayers at the state level

First, in most state capitals the stimulus enticed state lawmakers to spend on new programs rather than adjusting to lean times. They added health and welfare benefits and child care programs. Now they have to pay for those additions with their own state’s money. …

Second, stimulus dollars came with strings attached that are now causing enormous budget headaches. Many environmental grants have matching requirements, so to get a federal dollar, states and cities had to spend a dollar even when they were facing huge deficits. The new construction projects built with federal funds also have federal Davis-Bacon wage requirements that raise state building costs to pay inflated union salaries.

Worst of all, at the behest of the public employee unions, Congress imposed “maintenance of effort” spending requirements on states. These federal laws prohibit state legislatures from cutting spending on 15 programs, from road building to welfare, if the state took even a dollar of stimulus cash for these purposes.

The Tribune Review also features a Brent Bozell piece on the economic impact of the stimulus, which (needless to say) has also been less rosy than its backers told us:

Before he was even in office in January, Obama’s economic advisers Christina Romer and Jared Bernstein issued a report on the economic situation. If nothing was done, they claimed, the unemployment rate would keep rising, reaching 9 percent in early 2010. But if the nation embarked on a fiscal stimulus of $787 billion, the unemployment rate was predicted to remain under 8 percent.

So the Congress passed this massive spending plan, but unemployment rose above the danger zone that these Obama advisers predicted if the spending plan did not pass.

Worse yet, in December, the president announced his support for a second “stimulus,” sneakily taking $150 billion in unused TARP funds for preserving the banks and pouring it down a liberal “recovery” rat hole.

Yes, government can save government jobs — as Obama’s “stimulus” was broadly spent in preserving positions for schoolteachers, public librarians and employees at community health clinics — but it can’t create and maintain private-sector jobs or force the private sector to create and maintain jobs.

Harvard economists Alberto Alesina and Silvia Ardagna recently conducted a comprehensive analysis for the National Bureau of Economic Research. They looked at large changes in fiscal policy in 21 nations. They identified 91 episodes since 1970 in which policy moved to stimulate the economy. They then compared the interventions that succeeded with robust growth and those that failed. The results were crystal clear. Successful stimulus depended almost entirely on cuts in business and income taxes. Failed stimulus occurs mostly with a strategy of increases in government spending.

And yet, the advocates of spending our way to prosperity want yet a third stimulus of more government spending.