Faltering national economy spells trouble for Mass.

From The Beacon, September 2010, Vol. XXXVI, #8

After two brutal years of economic woes, people are understandably sick and tired of enduring unemployment, continuing budget distress in city and town halls and statehouses, and ongoing speculation about a “double-dip” recession that could cause even more hurt.

At the local level, municipal leaders are grappling with a budget crisis that has been compounded by the deepest local aid cuts in state history, and they are appropriately worried by the prospect that fiscal 2012 could be our most difficult year yet, due to the end of federal stimulus funds and the possibility that voters could eliminate $2.5 billion in tax revenues on election day if Question 3 passes to slash the sales tax rate from 6.5 percent to 3 percent.

This is an election season, so we shouldn’t be surprised by the rhetorical imbalance from officials who will trumpet economic indicators showing that Massachusetts is doing better than most states in terms of rebounding from the recession. A disproportionate focus on good news that ignores other facts could mistakenly leave residents with the feeling that we are out of the woods. We aren’t.

True, we added 19,000 private sector jobs in July, and state tax revenues are up 6.5 percent over the first six weeks of the fiscal year. But Massachusetts home sales plummeted 10 percent last month (mostly due to the end of the federal tax credit), and the net job gain was a paltry 13,000 when all occupations were accounted for. Massachusetts unemployment is still over 9 percent. Tax revenues are still below 2008 levels. Our economy is doing well here only when compared with places like New York and California – two basket cases that are ensnared in a nasty political and fiscal morass – and other sagging states.

Many years ago, Alan Greenspan made headlines when he warned of “irrational exuberance.” That may have been a different time (when the economy was superheated and setting itself up for a correction), but the sentiment is instructive. We cannot afford to simply hope or wish the recession away, or, even worse, ignore what has worked so far to stabilize our economy and instead shift to another course of action that could indeed bring about the double dip that must be avoided.

What has worked so far has been the massive infusion of federal stimulus dollars, and the use of those funds to blunt the damage to state and local budgets, services and personnel. In fiscal 2010 and 2011, more than $2.5 billion in federal funds have prevented deep cuts from being unacceptable cuts at the local and state level here at home. This has been repeated in almost every state in the nation. The stimulus has preserved tens of thousands of jobs for teachers, police officers, firefighters, public works employees, librarians, and other key workers, thereby preserving critical services that are vital to our economy in both the short- and long-term.

Those who irrationally ignore the success of the stimulus are now clamoring for an end to this fiscal investment policy, and they are myopically focused on reducing the federal deficit even though an early end to this job-and-service-creation approach this would undoubtedly trigger much greater pain here at home and across the country. Fortunately, Congress and the Senate passed a $26 billion stimulus extension for state and local governments in July, but not before the shortsightedness of overly eager deficit hawks cut the package in half. They may think this is good politics, but it is very bad economics.

The nation’s economy is faltering, and it is vitally important that federal policy continue to focus on investment in jobs, in services, and in building a stronger foundation for our recovery. If, instead of investment, the policy prematurely changes course to deficit reduction and deeper spending cuts, then Massachusetts will be dragged down with the rest of the United States, and the double-dip nightmare will come true.

In a local version of this investment versus divestment debate, the ballot question to slash the sales tax would, ironically, cut annual revenues by the same $2.5 billion amount that we have received in federal stimulus funds. Forget about any glimmer of hope and early signs of recovery that make Massachusetts look better than California and New York. The impact on our economy would be devastating and would catapult Massachusetts into the “worst of the worst” category. There is no way that municipalities or state government could implement the tax cut without harming the economic underpinnings that are supporting us right now.

The recession won’t go away by simply hoping or wishing, and our recovery won’t be stronger if we reverse course and slash instead of build up. We have real choices to make at the federal and state level, and this is the time to choose wisely, by being realistic, pragmatic, and practical. We can invest and gradually move toward recovery and renewal, or we can trigger a double dip recession that will make the past two years seem like the good old days.

This seems like a pretty easy decision.