Gov. Ed Rendell is, as head of the National Governor’s Association as well as the chief of a state facing a major revenue shortfall, leading the push for a federal “stimulus” package that would direct billions in additional taxpayer funds to the states.
Rendell sees this as both a fix to Pennsylvania’s current budget crunch and as a tool to revitalize the economy. The state faces a revenue shortfall of $2.3 billion, according to the Governor’s latest guestimate (up from $1.6 billion in December). His proposed fix relies in part on $450 million from a federal stimulus package. However, a look at recent Pennsylvania spending shows why a federal bailout of the states is bad policy and won’t work.
Under Rendell, state spending has increased 35.8%, well exceeding the rate of inflation of 17.4%. In Government on a Diet: Spending Tips 2008, a report released last year, the Commonwealth Foundation identified billions in potential spending reductions that would not harm Pennsylvania’s most vulnerable citizens dependent on taxpayer assistance.
While Rendell has cut $500 million from the current state budget by freezing hiring and other measures, the revised budget still represents a 2.3% increase over the 2007-08 fiscal year. It would be hard to argue he has “cut spending to the bone.” In fact, even after these cuts, the Commonwealth Foundation has found about $1.4 billion in spending that should be cut.
While Governor Rendell is now encouraging spending restraint and threatening to layoff state workers, he continues to practice “Do as I say, not as I do” politics. Rendell recently created a new position for a former lawmaker and political ally, and he continues to celebrate pork projects like grants to snowmobile clubs, a website about a groundhog in a car accident, and millions in grants for tourism.
A federal bailout of the states would only reward the misuse of taxpayers’ money in states like Pennsylvania. Throwing more money at Medicaid (one provision of the proposed package) eschews much needed reform of that program, which is currently fiscally unsustainable. Governors Mark Sanford of South Carolina and Rick Perry of Texas wrote an editorial opposing a federal bailout, and for good reason—their fiscal prudence would be punished, while Pennsylvania would be rewarded for its fiscal irresponsibility.
The other argument used to support the federal bailout of the states is that new spending will stimulate the economy. Pennsylvania is exhibit A that government spending doesn’t create jobs or boost citizens’ income.
A recent article in the Pittsburgh Tribune-Review describes some of the $1.5 billion in borrowed money spent on an “economic revitalization” program under Governor Rendell toward projects like hockey arenas, soccer stadiums, convention centers, and film studios. This is in addition to annual spending on economic development—in which Pennsylvania spends more than any state except Ohio.
But despite all this “economic development” spending, Pennsylvania continues to lag the nation in job growth and state economic rankings, while losing residents to other states. In fact, in a recent analysis, the Commonwealth Foundation found that states spending the most on “economic development” had slower economic growth than states spending the least, and states with lower taxes had stronger economic growth.
|Impact of State Economic Development Spending: Since 2002|
|Job Growth||Income Growth||Population Growth|
|Lowest 10 States||9.3%||34.3%||6.0%|
|Highest 10 States (includes PA)||4.3%||28.0%||3.3%|
|Source: Council for Community and Economic Research, Bureau of Labor Statistics, Bureau of Economic Analysis, Census Bureau|
There is a lesson in all this: so-called “economic development” and “infrastructure spending” is no economic stimulus. Brian Riedl’s recent backgrounder for the Heritage Foundation offers a synopsis of why government spending doesn’t “stimulate” the economy, and refers to several studies that more spending (including “stimulus” packages) undermines economic growth. Despite the impression given by Gov. Rendell and the media that all economists support a stimulus package, most economists think there will be little economic benefit, or even economic losses, and none can point to a government-funded economic stimulus that delivered.
The only thing a stimulus package would stimulate is more wasteful spending. For the sake of fiscal responsibility, and for our economy, please, don’t bail out our state.
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Nathan A. Benefield is Director of Policy Research with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.