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Take Action: Additional Federal Job Creation and State Fiscal Relief Needed

With the new year, Progressive States Network is working with allies to launch a campaign to demand a new, federal job creation plan that includes fiscal relief to state and local governments in order to foster economic growth and create and maintain jobs. We are asking state legislators to sign onto a letter to promote this job creation plan, the full text of which can be seen at www.progressivestates.org/jobcreation. Legislators can sign the letter at www.progressivestates.org/jobcreation or by emailing jobcreation@progressivestates.org.

We are also asking advocates to sign onto a similar letter for organizations in support of additional federal action on job creation and state fiscal relief.  Activists, too, can also take action by using our handy online tool to contact their state legislators to let them know about the job creation letter and to encourage them to sign. 

The passage of the American Recovery and Reinvestment Act (ARRA) in early 2009 was critical for staving off a full collapse of the national economy, helping states create and maintain jobs and addressing gaping state budget deficits.  By directing a substantial portion of funds towards education and Medicaid, the Recovery Act kept teachers in our classrooms, nurses employed in our clinics and hospitals, and public safety officers protecting our streets.

Nevertheless, economic uncertainty persists.  Although the national recession may have technically ended, millions of Americans are out of work and states are struggling to find ways to deal with enormous deficits.  High unemployment, a record number of foreclosures, huge cuts to public services, and decreased quality of educational systems threaten long-term recovery. 

The gravity of this crisis demands swift and bold action by federal lawmakers on job creation.  Accordingly, Progressive States Network is working to highlight state voices advocating for additional action on jobs.  PSN encourages legislators to sign on to our letter calling on President Barack Obama and Congress to enact a new, broad-based job plan, including fiscal relief to states and local governments to foster growth and create jobs across the nation. 

TAKE ACTION: www.progressivestates.org/jobcreation



Table of Contents:

- 2009 Recovery Plan Provided Significant Support to the Ailing Economy

- Why More Federal Job Creation Funding is Needed

- Economic Benefits of Public Programs: Why Federal Dollars Should Be Invested in the States

- The Need for Federal Action

- TAKE ACTION: Sign on to PSN's Job Creation Letter


2009 Recovery Plan Provided Significant Support to the Ailing Economy

The core of the Obama administration's response to the economic downturn was the passage of the American Recovery and Reinvestment Act (ARRA) last February.  In a speech to the Federal Reserve Bank of Chicago in September 2009, Christina Romer, Chair of the Council of Economic Advisers, confirmed that, "[p]roviding $787 billion of tax cuts and spending increases [is] the boldest counter-cyclical fiscal expansion in American history....the key reason that we begin this fall with a sense of hope rather than dread of a second Great Depression is because the policy response in 2008 and 2009 has been fast, bold, and effective." 

Indeed, the rapid implementation of the Recovery Act has alleviated the severity of the recession.  After four consecutive quarters of decline, the country posted a 2.2 percent increase in gross domestic product (GDP) in the third quarter of 2009.  The Council of Economic Advisers finds that the ARRA has had an immense impact on national economic performance and added up to 4 percent to growth in the third quarter.  The Congressional Budget Office (CBO) estimates that the ARRA created or maintained 600,000 to 1.6 million jobs as of September 2009 and found it decreased the unemployment rate by almost one percentage point.  With large portions of the stimulus funding public education and health care programs in the states, a key part of that job creation program was to keep teachers in the classroom and medical professionals caring for patients across the country.  It is estimated that there would be 250,000 fewer education professionals employed across the country without the ARRA funds. 

The Recovery Act has not only assisted national economic performance, but has also provided relief to families.  The Center on Budget and Policy Priorities (CBPP) analyzed the affect of several provisions of the ARRA, including the expansion of tax credits for working families, temporary strengthening of unemployment insurance benefits, increasing food stamps, and a "one-time payment for retirees, veterans, and people with disabilities," and discovered that the recovery efforts are responsible for keeping over 6 million Americans above the poverty line and alleviating the severity of poverty for almost 33 million.

Why More Federal Job Creation Funding is Needed

Yet, federal action did not go far enough.  In fact, several economists called for a much larger recovery package at the time of its passage. 

An analysis by the Economic Policy Institute (EPI) entitled Jobs Crisis Fact Sheet provides a somber analysis of the current situation: 15.4 million Americans are unemployed; 38.3 percent of unemployed have not had a job in over six months; 8 million jobs were lost during the recession, which includes 1.6 million lost in construction and 2.1 million lost in manufacturing; 1 in 10 Americans are unemployed; 1 in 6 Americans are underemployed; and 15 states are experiencing double-digit unemployment.

Two recent reports, the Pew Center for the States' Beyond California: States in Fiscal Peril and the National Governors Association and the National Association of State Budget Officers' joint publication, Fiscal Survey of States, both highlight burgeoning budget gaps, precarious economic circumstances, enormous declines in tax revenue, and generally reveal a poor fiscal outlook for states in the upcoming years.  Currently, 48 states confront deficits in the upcoming years.  In fact, CBPP estimates that states will face cumulative budget deficits of approximately $350 billion in 2010 and 2011.  The downturn has additionally taken an enormous toll on tax revenue.  Mark Zandi, Chief Economist at Moody's Economy.com, reports that state and local tax revenues have dropped 9 percent from last year, "the largest decline on record going back to just after World War II."

Source: Center on Budget and Policy Priorities - Recession Continues to Batter State Budgets; State Responses Could Slow Recovery

The ARRA played a significant role as a buffer against larger budget cuts this fiscal year, which would have severely hampered economic recovery even further.  However, states will again be forced to consider drastic fiscal measures to alleviate budgetary strain that will likely result in enormous cuts to vital social programs, like education and health care.  CBPP examined the states' response to shortfalls and notes that to date:

  • 28 states instituted cuts that will limit low-income children's access to health care
  • 24 states have slashed services for the elderly and disabled
  • 36 states have reduced funding for higher education
  • 42 states implemented cuts that affect state employees, including 26 that have hiring freezes, 14 that have announced layoffs, 26 that have decreased wages

 

Since August 2008, state and local governments have eliminated 132,000 positions from their workforces.  Teachers, nurses, public safety officers, and many other state and local employees face the dire prospect of job loss during a time of economic uncertainty.  At the same time, families will have to deal with the reality of budget cuts: larger class sizes, an inferior educational system, reduced health care services, and generally diminished quality of vital public programs.  Furthermore, as EPI indicates, budget cuts have a detrimental impact on private employment and performance.  About half of the economic activity and jobs lost due to budget cuts will occur in the private sector. 

Economic Benefits of Public Programs: Why Federal Dollars Should Be Invested in the States

As federal aid to states has a very high economic multiplier effect or "bang for the buck," states are some of the most effective vehicles for job creation.  Moody's Analytics finds that every federal dollar spent on extending unemployment insurance benefits fosters $1.61 in economic activity.  Similarly, a federal dollar spent on:

  • Temporarily increasing food stamps creates $1.74 in economic activity
  • Aiding state governments creates $1.41 in economic activity
  • Investing in infrastructure creates $1.57 in economic activity

On the other hand, tax cuts and credits generally do not produce similar economic benefits as assisting families or state governments.  For instance, a dollar spent on cutting the corporate income tax only results in $0.32 of economic activity.  As a result, direct relief to states and a concerted effort to create and sustain jobs for Americans on Main Street is the most prudent course of action.On the flip side, EPI provides the following chart illustrating the unique danger of state budget cuts, which can ripple through the economy as teachers, nurses and police are laid off, state funds supporting private sector activity are reduced, and individuals receiving state support stop spending in their local communities.

Source: Economic Policy Institute - Dire states--State and local budget relief needed

The Need for Federal Action

For these reasons, the federal government must take proactive steps to create jobs and enact further fiscal relief for state and local governments.  This includes extending the federal medical assistance percentages (FMAP) increase for Medicaid, providing additional support for education, boosting funding for infrastructure projects and public transportation investments, supporting the long-term unemployed to sustain them until they reenter the workforce, and providing direct and comprehensive financial assistance to state and local governments to perform the vital services needed to maintain growth in local communities.

There is abundant bipartisan support for federal funding for job creation and aid to states.  Winthrop University conducted a poll in November 2009 and found that 71.6 percent of respondents favor funding for jobs (94.5 percent identify as Democrats, 53.4 percent Republican, 68.9 percent Independent) and 62.7 percent support "giving aid to states in serious financial trouble" (80.6 percent Democrat, 50.9 percent Republican, 63.6 percent Independent).

Congress has begun taking action.  On Wednesday, December 16, 2009, the House passed H.R. 2847, the Jobs for Main Street Act of 2010, which would redirect money from the Wall Street bailout to fund environmental and infrastructure projects, extend FMAP, support education jobs, and provide small business loans.  Some of the major provisions include:

  • $23.5 billion to extend the higher federal match for Medicaid through June 2011
  • $27.5 billion for highway improvements
  • $8.4 billion investment for public transportation investments
  • $23 billion to create and maintain 250,000 education jobs to modernize public education facilities
  • $1.18 billion to support 5,500 law enforcement positions
  • $2 billion for clean and safe drinking water projects
  • $2 billion to address public housing needs
  • $500 million to retain and hire firefighters

 

This is a good start, but Congress should go further.  The federal government must act boldly to ensure a robust economic recovery and provide relief to working families across the nation.  Moreover, federal lawmakers should include provisions for the highest level of transparency in any jobs bill to guarantee that recovery efforts are equitable and efficient.  To that end, PSN is a member of States for a Transparent and Accountable Recovery (STAR), a network of groups that work at state and local levels to ensure that the implementation of ARRA is transparent, accountable, fair and effective.

TAKE ACTION: Sign on to PSN's Job Creation Letter

If you are a state or local lawmaker, please sign onto a letter calling on the President and Congress to enact a comprehensive jobs plan, including fiscal relief to states and local governments to foster economic growth and create and maintain jobs.  Organizations can sign onto a similar letter as well.  Activists are invited to contact their state legislators and ask them to sign on to this letter.

PSN looks forward to working with lawmakers and advocates on this issue.  If you are a lawmaker interested in introducing a resolution requesting the federal government to move a jobs bill, PSN would like to assist you in that effort.  Please contact us at jobcreation@progressivestates.org.

Resources

2009 Recovery Plan Provided Significant Support to the Ailing Economy

Bureau of Economic Analysis - Gross Domestic Product: Third Quarter 2009
Center on Budget and Policy Priorities - State-Level Data Show Recovery Act Protecting Millions From Poverty
Center on Budget and Policy Priorities - New CBO Report Finds Recovery Act has Preserved or Created up to 1.6 Million Jobs
Congressional Budget Office - Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output as of September 2009
Christina D. Romer, Chair, Council of Economic Advisers - Back from the Brink
Christina D. Romer, Chair, Council of Economic Advisers - On Today's GDP Numbers
Government Accountability Office - Status of States' and Localities' Use of Funds and Efforts to Ensure Accountability
The New York Times - U.S. Economy Started to Grow Again in the Third Quarter

Economic Benefits of Public Programs: Why Federal Dollars Should Be Invested in the States

Center on Budget and Policy Priorities - Additional Federal Fiscal Relief Needed to Help States Address Recession's Impact
Center on Budget and Policy Priorities - Recession Continues to Batter State Budgets; State Responses Could Slow Recovery
Center on Budget and Policy Priorities - An Update on State Budget Cuts
Economic Policy Institute - Dire states--State and local budget relief needed
Economic Policy Institute - Jobs Crisis Fact Sheet
National Governors Association and the National Association of State Budget Officers - Fiscal Survey of States
The New York Times - New Consensus Sees Stimulus Package as Worthy Step
Pew Center for the States - Beyond California: States in Fiscal Peril
Stateline.org - Economist Mark Zandi: On stimulus, jobs, state finances, inflation and the year ahead
Mark Zandi - The Impact of the Recovery Act on Economic Growth
Moody's Analytics - The Case for Another Round of Federal Aid to State & Local Govt

The Need for Federal Action

AFSCME - Legislative Report
Winthrop University - Winthrop Poll Results - November 2009 Findings