Out of Control Policy Blog

Governors Offer Differing Perspectives on State & Local "Bailout"

From the AP this afternoon:

Two governors offered Congress starkly different solutions Wednesday for the ailing economy, with New York's David Paterson seeking immediate aid from Congress, and South Carolina's Mark Sanford urging lawmakers not to throw more taxpayer money at the problem.

Paterson, testifying Wednesday before the House Ways and Means Committee, asked Congress to include aid for state budgets as part of any new economic stimulus package. Lawmakers are considering a stimulus package that could be voted on after the Nov. 4 election.

"Just like the financial services industry, we need a partner in the federal government in order to help stave off an impending financial calamity and stabilize our fiscal condition," said Paterson, a Democrat.

On Tuesday, Paterson said New York is facing a $47 billion deficit by 2012.

Twenty-nine states closed budget gaps totaling $48 billion for the 2009 budget year, and the projected shortfall for the following year is $100 billion, said Paterson.

Paterson is seeking higher Medicaid payments to states, greater unemployment benefits, infrastructure spending, and a boost in food stamp benefits to help state budgets.

Gov. Paterson is by no means alone here. Governors have long complained that unfunded mandates in welfare, Medicaid, and the like have hamstrung them budget-wise and removed some of their flexibility and discretion in crafting fiscal reforms. Using this logic, then if the feds are going to mandate it, they should pay for it. Paterson doesn't directly make that particular argument here, but it's a relevant subtext.

True to form, Gov. Sanford offered a differing perspective, and one that will resonate with free marketers:

Sanford of South Carolina, a Republican, also appearing before the committee, contended they should not pass another stimulus package because it will not fix the economic problems but drive the country deeper into debt.

"I'm here to beg of you not to approve or advance the contemplated $150 billion stimulus package," Sanford said. "This $150 billion salve may in fact further infect our economy with unnecessary government influence and unintended fiscal consequences."

By Sanford's count, the federal government has already pumped $2 trillion into the economy this year through a previous stimulus package, the financial services bailout, and rescue actions for specific firms.

It sounds like he even quoted Ayn Rand in his testimony, yet another reason that Gov. Sanford is a breath of fresh air in modern politics.

Then there's this:

A separate hearing before the House Transportation and Infrastructure Committee demonstrated bipartisan support for tens of billions of dollars for infrastructure projects such as highway construction, water and sewer projects and modernization of schools and public housing.

There, lawmakers and witnesses such as New Jersey Gov. Jon Corzine, a Democrat, touted public works projects for both creating jobs and making the economy more efficient.

"Every billion dollars in spending on infrastructure, on highway and transportation expenditures does result in 35,000 new jobs," said Rep. John Mica, R-Fla.

There's no doubt that the prospect of dangling federal money for infrastructure will cause policymakers on both sides of the aisle to salivate. And I'd be the first to argue that we have tremendous infrastructure investment needs.

But let's make no mistake that including infrastructure spending in another economic stimulus package is nothing more than a quick Keynesian "fix" to juice the economy. With well over $1.6 trillion in outstanding infrastructure needs today, you could put hundreds of billions of spending in a stimulus and combine it with the $60 billion Dodd/Hegel National Infrastructure Reinvestment Bank proposal under discussion, and you still wouldn't come anywhere close to closing the infrastructure gap. What Congress is talking about right now is nothing more substantive than "government-as-a-jobs program" and won't make a substantive contribution to addressing the systemic problems (political allocation of tax dollars, deferred maintenance, underinvestment and underperformance, etc.) that are a roadblock to delivering the 21st century infrastructure we need to keep our economy moving.

Leonard Gilroy is Director of Government Reform


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