Weekly Wrap: Calls Increase to Extend Economic Stimulus to help states

By: - October 9, 2009 12:00 am

Talk of another federal economic stimulus package is gaining momentum largely because federal officials are beginning to realize that state governments will be worse off next year compared to the first two years of the recession.

Just don’t call it stimulus for now. The Obama administration and congressional Democrats are contemplating ways to extend additional federal aid to safety net programs such as unemployment and food stamp benefits, according to the New York Times . Obama aides told the newspaper such an action would be an expansion of the existing billion stimulus, not a new job-creating program.

Federal officials say if the unemployment rate, currently 9.8 percent, keeps rising to 10 percent or higher, states could need help paying for additional jobless benefits and Medicaid, the federal-state program for low-income people. State officials say they already cut spending deeply and raised taxes and fees this year to balance budgets, even with federal stimulus aid. They will not have as much stimulus aid in 2010 as they did this year-unless Congress and Obama send them more.

Proposing another stimulus is risky because polls show many Americans are nervous about adding to the .3 trillion federal budget deficit. It would be the third stimulus in three years, counting President Bush’s tax rebate in 2008. This is why Obama aides are downplaying another stimulus. No matter what they call it, extending aid to safety net programs stimulates the economy because that money gets spent quickly and entirely by the recipients.

Wall Street Journal columnist Gerald Seib made a case for a state-based stimulus. He said Democrats will be trying to create jobs in 2010 because the party in control usually loses a lot of seats in midterm elections when the jobless rate is high, as in the 1982 recession when the GOP lost 26 House seats.

“As Democrats ponder that scenario,” Seib wrote Oct. 6, “here is one word they might want to keep in mind: states. Getting additional help to states in coming months might well be both the most efficient and the most politically feasible action Washington could take to avoid sinking deeper into the jobs hole.”

New York Times columnist Paul Krugman, who urged a larger stimulus package in the first place, said the federal government still needs to fire up the economy through added stimulus spending. Forget about the deficit for now, he said. Additional stimulus spending will improve the economy in the long run, Krugman said.

“I know more stimulus is a hard sell politically,” he wrote Oct. 2. “But it’s urgently needed. The question shouldn’t be whether we can afford to do more to promote recovery. It should be whether we can afford not to. And the answer is no.”

Krugman makes the list of economists backing a third stimulus that is being kept by the Center for Economic and Policy Research, a liberal research organization inWashington, D.C..



Louisiana Gov. Bobby Jindal turned Washington Post columnist Oct. 5 to pronounce the Democrats’ health care reform effort dead and to offer 10 suggestions how Republicans can seize the issue. Jindal said Republicans have come off as too negative towards the Democrats’ plan without recommending their own agenda.

“In short, ideas matter,” Jindal wrote. “The public is interested in solutions that will improve America’s health-care system, not dismantle it. Republicans can lead on this.”

Jindal, whom pundits mention as a future GOP presidential contender, listed several ideas that are in the Democrats’ proposal, such as increasing the use of electronic medical records.

The Atlantic , among others, answered Jindal’s column-“His understanding of the health care debate is just weird,” concluded Atlantic business editor Derek Thompson.

Saturday (Oct. 10) is a big day in the life of the stimulus. That is the day states and others who receive money from the billion package are supposed to file the first report detailing how much money they have spent, the status of projects and – crucially – how many jobs they have saved or created.

The information is scheduled to be posted on www.recovery.gov on Oct. 30. Until then, states have a few weeks to revise and correct the data. State News , a publication of the Council of State Governments, provided a pretty good explanation of the stimulus reporting deadline.

Low blows? New Jersey Gov. Jon Corzine’s campaign pokes fun at his GOP opponent’s girth. A prominent supporter of Virginia gubernatorial candidate Robert McDonnell (R) apologizes for implying that McDonnell’s Democratic opponent, Creigh Deeds, has a stuttering problem.

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Stephen Fehr

Stephen Fehr is a senior officer with Pew’s government performance portfolio. He is a lead writer on many of the products generated by the portfolio, specializing in state and local fiscal health.