Federal partnership is a call to action

From The Beacon, March 2009, Vol. XXXV, #3

In a remarkable display of leadership and action, the federal government has enacted the most ambitious economic stimulus plan since the 1930s, and, most notably, the president and Congress have recognized and embraced the need for a full and lasting partnership with state and local governments in order for the U.S. economy to rebound and grow.

The federal stimulus package was signed into law just three weeks after our new president took office, but not a day too soon. The truth is that our problems will get worse before they get better. Today’s bad news may look like the good old days in just a few months, as unemployment will surely go higher, the stock market will likely drop lower, and consumer and business confidence levels are certain to weaken even more. That’s why this economic downturn is already being called “The Great Recession.”

Our economic problems are exacerbated by a vicious cycle: as more people lose their jobs and homes the demand for public services increases, but the tax revenues that pay for these services decline. Massive state and local budget deficits are hitting at just the worst time, creating a widening gap between what citizens and communities need from their government and what their government can deliver.

The federal stimulus package is a massive investment in people, services and job creation, with $790 billion targeted in several major areas: tax cuts for middle class individuals and families to increase disposable income to put back in the economy; revenues for essential state, local and federal services, including education, public safety, unemployment benefits, food stamps and health care; and infrastructure funding to create construction jobs and improvements that leverage long-term economic growth, in transportation, energy, housing, communications, and community development.

Massachusetts is slated to receive more than $11 billion as its share of the federal economic recovery plan. Billions of this will go to taxpayers in the form of tax cuts and credits. The remaining funds will be divided between state budget assistance, funding for state and local programs, and infrastructure investments. Weeks after the package was signed into law, there are far more questions than answers regarding the specific amount of funding that we will receive, how it will be divided, and the rules for how it can be spent.

One principle is clear: the federal government has embraced state and local governments as necessary partners in rebuilding our economy and softening the hard and difficult pounding that the recession is delivering on citizens and communities. Thus all state and local officials have a concurrent responsibility to honor that partnership as best we can. We must make the best use of these resources, and this unprecedented infusion of money, to bring stability to local budgets, to maintain and invest in critical services that leverage economic growth and serve the public, and to build projects in the most efficient and effective manner possible to create jobs and improve our economic competitiveness in the future.

The legislation gives enormous flexibility and power to governors in determining how the federal funds will be allocated. With dozens of programs, and billions of dollars, the state’s executive branch must ensure that public officials and the public at large know how much money is available, what the federal government will allow in terms of spending (what it can be spent on and when), and who will make the decisions on behalf of the state. This process must be fully transparent and include all stakeholders at the table before critical decisions are made. The same is true for any federal funds that are being sent directly to school districts and cities and towns.

It is vitally important for us to remember that these funds can be spent on operations and services, but the funds will disappear after fiscal 2011. These dollars will stop our fiscal freefall, but in many ways the federal assistance will merely push our deficits off to future years if we rely on the aid to fund basic services and have no plan to replace the revenues in two years.

That is why we should reject any claims that major structural reforms are not necessary because of the federal partnership. The federal stimulus package gives us more time, but we must win health care plan design authority, local option revenues, closure of the telecommunications tax loopholes, changes to the pension system, and all of the MMA’s major reform goals. If Massachusetts takes a pass on real reform, we’ll be facing another crisis in a year or two, just when the rest of the nation is coming out of the recession.

The federal government has taken dramatic action and extended a strong hand of partnership to struggling states and localities. We have a duty to make the best use of the billions that will come to Massachusetts, and we have a duty to win real reform to make sure we will be able to grow our economy and serve the public. That’s how we’ll get through the Great Recession. Otherwise, this will be a great wasted opportunity.