Budget guru warns of federal stimulus spending and 'an end to federalism'
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Published: 06-Aug-2010

By Patrick B. McGuigan

Published: 06-Aug-2010

Bob Williams, the President and spokesman of StateBudgetSolutions.com, today warned policy analysts and members of the news media, including CapitolBeatOK, about what he considers grave impacts in the pending federal bailout of state governments. 

Concerning the proposed expansion of federal debt to finance the state “bailout,” Williams told a Friday (August 6) conference call, “The extension of federal stimulus funds is really ‘nicotine’ for state governments, “it leads to short-term, higher state level government spending that states can not sustain or maintain and will result in a painful withdrawal when after the stimulus expires early next year.”  

House Speaker Nancy Pelosi intends to call Congress back into a special session next week to approve a new wave of $26 billion in federal “stimulus” funds to the states.

The maneuvering to expedite action on the new stimulus spending comes as analysts note two trends in fiscal pronouncements from state and federal officials. On the one hand, members of the National Governors Association are overstating gaps in general revenue streams. On the other hand, Williams and others contend, officials are generally understating the challenges facing state and local government pension funds.

Williams and other analysts are pointing to the efficacy of actions taken recently in Utah to address unsustainable debt in pension and retirement plans, but those issues are not getting as much attention as the drive to sustain or augment state spending through increased federal debt.

Concerning cash infusions to sustain recurring expenses or to preserve government jobs, Williams stressed his concerns. “More nicotine (stimulus funds) that states take from the federal government will lead to cash-strapped states being held hostage to the federal government,” Williams predicted. He asserted the result will be “an end to federalism.”

Williams noted, “California is now receiving more money from the federal government than from all state tax streams.” At a time political leaders are referring to economic recovery scenarios, the Government Accounting Office, Williams said, is estimating that state and local governments will not “recover” until 2060.  In any case, both Williams and the governor’s association estimate, government revenues will trail any private sector recovery by at least two years.

Williams delivered his sober warning in the wake of last week’s National Conference of State Legislatures (NCSL) and during the American Legislative Exchange Council (ALEC) annual meeting in San Diego. Williams is a featured speaker at the ALEC gathering, which wraps up this weekend.

While NCSL leaders were pressing for increased federal revenue at their gathering, and gaining a sympathetic ear from Obama administration officials, ALEC members generally were advocating a freer private market and new limits on government spending and debt.

“Legislators at these conferences don’t realize their states have been borrowing money behind their backs to pay for these unfunded obligations, including unemployment funds and state employee healthcare and pension deficits and when states get low on general funds, they shift funds around and seek federal stimulus funds,” Williams told journalists on the conference call.

Repeating his concerns about a potential “end to federalism,” Williams also said there appears to be a pattern of punitive federal actions or threats of action aimed at southern states, most recently and clearly touching Texas. This week, U.S. Rep. Mary Fallin, the Republican candidate for governor of Oklahoma, said she opposed the Obama administration’s new “bailout” despite its inclusion of as much as $300 million in new “stimulus” money.

Fallin said, “"the liberal leadership in the House has the votes to ram this measure down our throats regardless of my opposition and the opposition of other conservatives in Congress. That's why I am staying here in Oklahoma next week and continuing to talk to voters about my campaign and my mission: to restore principled, conservative leadership to the governor's office."

Oklahoma Superintendent of Public Instruction Sandy Garrett said the federal infusion is needed, but other members of the state’s congressional delegation echoed Rep. Fallin’s viewpoint.

As detailed in a chronology Williams provided after the conference call, “The Senate voted on Thursday to approve a state aid package that provides the states with $26 billion, $10 billion to retain teachers who would be subject to cutbacks, and an additional $16 billion to help states close their budget deficits. Pelosi said that she would bring back members of the House next week to approve the aid package. The House will likely reconvene on August 10.”

Williams’ recounting of recent events continued, “The federal stimulus funds … will increase state budget problems next year when this additional federal aid ends. The approved measure only provides funding through the first six months of 2011. When that six months ends, state spending will be $26.1 billion higher, but the states will have $26.1 billion less to spend. States do not have the funds to plug the hole left by the expiration of the federal funds. In the end, the short-term fix by Congress will increase the states’ long term fiscal deficits.”

Williams concluded his analysis, “The stimulus includes spending $10 billion to save 160,000 teachers doesn’t add up. The U.S. Education Department estimates that the education fund would preserve the jobs of about 160,000 teachers and other educators. That works out to be $62,500 for every teacher position saved, while the National Education Association (NEA), states that the national average teacher salary in 2008-09 was $54,319, and the average starting salary is $34,935.”

National press reports have predicted the new wave of stimulus money will pass Congress. President Barack Obama has said he will sign the bill.

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