Ted Boettner: Federal funds buy time for long-term budget solutions
Published in The Charleston Gazette May 10, 2009
Lawmakers will have a ready tool when they reconvene at the end of the month to pass a budget for the coming fiscal year. The federal Recovery Act provides almost $2 billion to West Virginia - more than enough money to fill the projected $200 million budget gap. While some of the funds are earmarked for new projects, such as highway and bridge repairs, Congress intended for states.
The principle behind the federal stimulus is that a significant, temporary increase in public spending is needed to rapidly increase the demand for goods and services, which in turn fuels the economy, stabilizes businesses, and saves jobs. Economists project that every $1 of state spending reaps $1.36 in economic activity. Cutting state spending would create a reverse ripple effect and undercut recovery efforts. If the state cuts spending, it removes demand from the economy. This leads to layoffs, canceled contracts with businesses and nonprofits, and less money for workers to spend on goods and services.
Gov. Manchin recently told senior citizen groups that he plans to use the federal stimulus to help balance next year's budget, rather than cut needed programs. This is a prudent move, one that most states with budget deficits have embraced. In our own back yard, Virginia's governor said that the stimulus funding prevented the elimination of 7,100 state jobs. Maryland's governor used the funds to avoid cuts in K-12 education and community colleges and to fund anticipated growth in the state's Medicaid program.
While the stimulus funding buys us some time, it doesn't resolve the long-term budget problems facing the state. Even before the recession reached West Virginia, the state Budget Office was projecting a revenue shortfall of $370 million in three years. Given the troubled economy, the shortfall will only grow unless we take action to address the underlying problems.
Lawmakers would be wise to act quickly to pass a FY 2010 budget using the stimulus funds to fill the entire budget hole and then focus their attention on the future. The key problem is not over-spending. In fact, state spending has increased very little over the last couple of years. Reduced spending would jeopardize essential services, such as public health, law enforcement, and services for children, seniors and people with disabilities. Many of these programs are already strapped for funds and unable to absorb further cuts without reducing services.
The fundamental problem is that our revenues have declined due to the global economic recession and tax cuts. Before cutting programs, the Legislature should do everything it can to improve state revenues. Interim committees should dedicate time to at least three critical questions:
● First, what are the most effective strategies for encouraging the creation of good-paying jobs? Recent research by the Center on Budget and Policy found that limited information is available about jobs created as a result of job subsidies. The Legislature should require state agencies to collect and report outcome data on subsidies so that we can invest more money in strategies that work and stop spending money on ones that don't.
● Second, what can the state do to ensure a competitive workforce, now and in the future? Quality child care, college scholarships and loans, and re-training programs for laid-off workers are essential to creating a vibrant West Virginia workforce. Community college programs focused on "green jobs" of the future are also a critical piece of the work-force puzzle. Legislators should target state work-force investments to have the greatest positive impact and to ensure that minority and economically disadvantaged communities are well represented.
●Third, what are the fairest ways to share the cost of the public goods and services we rely on, such as schools, roads and public safety? Currently, low-income taxpayers in West Virginia shoulder a disproportionate share of the cost. For example, a family of four living at the poverty level currently pays 9.5 percent of its income in state and local taxes, while the richest 1 percent pays only 6.6 percent. Legislators should study options for raising revenues by increasing income taxes on the state's highest earners to more equitable levels.
We can dodge the danger of budget cuts in the coming year by using the federal stimulus money. But let's not miss the opportunity to make the changes required for the long-term fiscal health of our state. By addressing our short-term and long-term budget challenges responsibly, it will ensure that we have a strong and healthy budget that meets the needs of our working families and helps build a shared prosperity.
Boettner is the executive director of the West Virginia
Center on Budget and Policy.