There’s not a lot of good news about the economy these days, either here in California nor in the nation at large. What little there is, economists largely attribute to the impact of the federal economic recovery bill – the American Recovery and Reinvestment Act of 2009 (ARRA) – enacted last February.
The nonpartisan Congressional Budget Office estimates that the infusion of federal funds boosted economic growth by 1.2 percent to 3.2 percent in the third quarter of 2009 and kept some 600,000 to 1.6 million more Americans from losing their jobs.
Here in California, the ARRA provided $8.5 billion in direct aid to the 2009-10 state budget – keeping teachers in classrooms, students in college, and families and seniors receiving needed health services. Absent these funds, lawmakers would have been forced to cut deeper or raise taxes more.
Californians will receive an estimated $13.6 billion in tax credits, $606 million in added unemployment insurance benefits and $860 million of food stamp benefits — money aimed at boosting consumer spending while helping families make ends meet. Infusion of these dollars was arguably one of the few bright spots in a year of dismal economic news.
That’s why Gov. Schwarzenegger’s recent statement that Washington is “part of our budget problem” was puzzling. Lawmakers have made the argument that California hasn’t received its “fair share” of federal funds for at least two decades. But this argument hasn’t worked yet and there’s no indication that Congress will look more kindly on this approach in 2010.
There is a better approach that makes for good economic policy and, we believe, offers much better odds of success.
The nascent economic recovery remains fragile, both here and in the nation as a whole. A number of prominent economists believe that state and local government budget cuts could drag the economy back into recession or prolong what is likely to be an anemic recovery. As we’ve argued before, California is “too big to fail.” The magnitude of our budget crisis, and the measures needed to address it, are sufficient on their own to act as a dead weight on the national economy.
The level of spending reductions needed to balance the state’s budget in the absence of continued aid is almost unfathomable. Even a balanced approach that includes additional tax revenues would require deep reductions that would cost jobs, threatening the state’s ability to compete in the global economy for decades to come and shredding a safety net for families and children that is already in tatters.
So what’s the answer? Congress should act immediately — not to provide special treatment for California, but rather to head off the possibility that state and local budget cuts across the nation will drag down an already weak economy.
In terms of “bang for the buck,” federal aid to the states far surpasses additional tax cuts and is exceeded mainly by extending unemployment insurance benefits and increasing food stamp benefits, measures we’d urge Congress to consider, as well.
Federal dollars won’t provide a permanent solution to California’s structural budget shortfalls – the gaps that exist even in good economic times – but can mitigate the impact of that portion of the state’s fiscal woes attributable to the broader economic malaise.
Jean Ross is the executive director of the California Budget Project, a Sacramento-based nonpartisan policy research group. You can visit the CBP on the web at www.cbp.org and www.californiabudgetbites.org.