STIMULUS FOR THE STATES

Maine, like other states, must balance its budget every year. Faced with declining revenues, serious spending cuts will be necessary to accomplish this for the next few years. At the same time, however, the federal government should direct some of its stimulus funds to cash-strapped states to help them and their most vulnerable residents weather the economic downturn.

As several economists noted last month, decreased state spending can prolong what has officially been termed a recession.

“If states stop spending money and make cuts in programs and stop making investments, then they will slow the recovery,” said David Findlay, an economics professor at Colby College.

According to the state’s Revenue Forecasting Committee, the gap between revenues and state expenditures is expected to be about $150 million for the remainder of the fiscal year 2009, which ends June 30. The shortfall for the next two years is predicted to be about $500 million.

In mid-November, Gov. John Baldacci issued a curtailment order directing state agencies to cut $80 million. Because the Department of Health and Human Services and state funding of local schools are by far the largest share of the state budget, the curtailment was especially hard on them. DHHS spending would be cut by $30 million and school funding by nearly $28 million. Lawmakers must find an additional $70 million in cuts to balance the budget.

These cuts, of course, aren’t just on paper and mean that Maine residents from schoolchildren to the mentally ill to sportsmen to commercial fishermen to the desperately poor will get fewer programs and services.

According to the Center on Budget and Policy Priorities, there are signs that the recession is already hitting low-income Americans hard. Between September 2006 and October 2008, the unemployment rate for workers age 25 and over who lack a high school diploma – a heavily low-income group – increased from 6.3 percent to 10.3 percent.

In addition, food stamp caseloads have increased dramatically in recent months, rising nearly 10 percent between August 2007 and August 2008.

As a partial remedy, the center recommends a stimulus package that increases food stamp benefits, further expands unemployment benefits, offers additional rental assistance and provides direct fiscal relief to states.

“Because states cannot run deficits, even in recessions, they must close their shortfalls by cutting spending or raising taxes – actions that take money out of the economy and thereby make the downturn deeper and more protracted,” the center warns. “Sharp budget cuts also hamper states’ ability to respond to the rising need for health care and other services that occur when workers lose their jobs and their incomes plummet.”

Governors, including Gov. Baldacci, shared this message with President-elect Barack Obama this week. Their stimulus list also includes increased funding for Medicaid and infrastructure projects, which will create needed jobs.

The incoming president has said he will make economic stimulus his top priority and has set a goal of saving or creating 2.5 million jobs. Congressional leaders and Obama aides have been discussing the outlines of a measure that could exceed $500 billion over two years.

Breaking this dangerous economic cycle is costly, but necessary.