Stimulus may worsen state budget woes

By CHARLES M. ARLINGHAUS

The bill formerly known as "stimulus" has gradually morphed into a gigantic Christmas tree that no longer promises to help, but rather threatens the fiscal stability of state and local governments.

With recession on our minds, the federal government began pushing the idea of using government spending to help the economy a year ago. In February 2008, George Bush pushed through stimulus checks to taxpayers costing a mere $168 billion -- chump change after the trillions in debt he was busy running up.

It turned out neither the $500 check he sent you nor the massive deficit spending managed to stave off the recession. It doesn't matter; we're going to try it again anyway.

Last October, they upped the ante and decided to print $700 billion to send initially to banks and then to car companies. Without it, we were told, we faced another Great Depression. It had to be a huge number to convince markets we were serious. So far, they're not convinced.

The next big idea was infrastructure. Instead of giving you money to pay bills or buy a TV, which is made overseas anyway, let's take lots of government money to pay directly for roads and the like. The idea is to give the money to state and local government to build roads, fix bridges. We build stuff, right here, right now.

President Obama talked about spending money only on "shovel-ready" projects. We weren't going to plan new things that would take a while, but we would immediately infuse the economy with billions of dollars in every state. The phrase "shovel-ready" was a good summary: "shovels" because these projects were substantive dirt-and-bricks-and-pavement kinds of things, and "ready" because it would happen immediately, if not sooner.

Remember, though, that Washington is a town without fiscal discipline of any kind. A giant spending bill like this wanders through, and everyone will take the opportunity to add a little here and there. As a result, the bill has become enormous and complicated.

We're told that the Senate "slashed" $100 billion off the House version of the bill, yet the Senate ended up spending $19 billion more ($838 billion versus $819 billion, according to Bloomberg). That sort of math goes a long way toward explaining the nation's debt problems.

Simplicity has also gone out the window. The spreadsheet summary of the bill contains more than 400 line items (I've posted it on www.jbartlett.org). The Washington Post published a flowchart of where the money is going. It will make your head spin.

If the $800 billion were divided up by population, New Hampshire would receive a grant for about $3.5 billion. Instead, we were told this week that the state will receive about $130 million for roads, bridges and trains.

The rest of the money will go to programs that don't necessarily need a shovel and aren't ready. In fact, the Congressional Budget Office found that only $107 billion (about 13 percent) of the package will be spent the first year. By the end of 2010, about half of the so-called stimulus will be busy providing "immediate help."

The sad truth is that any bill in Washington becomes a political football and is used to pay for other programs people weren't able to pass on their own. Just about everything the government does will be rationalized by some congressman as "helpful for the economy."

At the state and local level, everyone still sees dollar signs. Local wish lists total $2.4 billion. How many of those projects are things we would do if we were spending our own money? The danger is using the lure of "free money" to do things you might not otherwise do instead of paying for existing priorities.

At the state level, there is a risk that lawmakers will use one-time bailouts from the feds to cover up a serious budget problem. With revenues continuing to deteriorate, the next budget will be close to $600 million short, even if lawmakers freeze state spending for two years. If that hole is papered over with one-time grants from the federal government, the problem will be merely delayed, not fixed.

Bailouts and other one-time grants ought to be used for projects, such as bridges, that are one-time capital expenses. A one-time windfall can't support operating expenses that will recur year after year.

We stand at a crossroads. The governor has a great opportunity to lead us down the right path when he presents his budget tomorrow. At the beginning of the year, he said that we got into this budget mess ourselves and we need to solve it ourselves. His budget can and should be based on a solid financial foundation, not one-time, evaporating revenue. That sort of fiscal leadership will earn broad support irrespective of partisanship.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.