Wednesday, October 28, 2009

Recession working out as planned

Steve McCann

Remember last spring, when many Republican governors balked at accepting Stimulus funds? Governors such as Rick Perry and Bobby Jindal sounded the alarm that these funds came with many unpalatable strings attached. Well, it hasn't taken long for the chickens to come home to roost, as Rev. Wright would say. The United States, thanks to the policies of the Obama Administration, officially is in the midst of the longest recession since 1933 according to the National Bureau of Economic Reserach. While the federal government can deficit spend in unheard of amounts, the states cannot. Because of the continuing high unemployment and lack of economic growth, most states are facing deficit problems worse than those experienced in 2009.

In an op-ed in the Investors Business Daily reveals what is happening in the State of Washington as a result of rushing to accept $4 billion in Stimulus funds to help close their $9 billion deficit in 2009.

When Washington legislators began looking for ways to close their next billion-dollar deficit, the legislative staff informed them that their options were limited. The "maintenance of effort" provisions in the Recovery Act mean that Washington state cannot adopt eligibility standards for Medicaid that are more restrictive than those in effect on July 1, 2008.

Most states were still basking in the economic growth of 2007 at that point, and were at their most generous level of eligibility standards. Almost every state is in this same sinking boat.

Restrictions on K-12 education budget reductions are also extremely severe. Because state lawmakers accepted $820 million in education stimulus dollars, only 9% of the state's $6.8 billion K-12 budget is eligible for reductions in fiscal 2011. The same restrictions apply to the current fiscal year.

The options left to the states are now severely limited. Many governors will again look to the federal government for a second stimulus package ceding even power and control to Washington D.C. Most states will again raise tax rates which will only have the effect of reducing revenues and causing business to potentially move to a less onerous tax environment in another state.

The only real hope for the states is for dramatic economic growth, but that will not happen with all the tax, spending and new regulatory policies coming out of Washington. Add to that the burden now placed on the states by the central government requiring a higher level of taxation and spending by the individual states. The economic activity in the United States will be anemic at best for many years to come.

But the progressive dream to centralize power in Washington D.C. will come closer to reality.

Page Printed from: at October 28, 2009 - 03:32:29 AM EDT

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