Progressive Voices

Wondering about the impact of last year's federal Recovery Act in North Carolina? Here are some scenarios to consider:

Imagine 10,000 North Carolina public school teachers receiving pink slips. Imagine an announcement that the school year would be shortened and that two to three more kids would be placed in every public school classroom, even kindergarten. Imagine that your neighbor of modest-income who has a child with special needs requiring special care such as speech therapy gets a notice saying that the family will now have to absorb this impossible cost all on their own.

Or, how about these?

Imagine the state's 58 community colleges turning away laid-off workers who show up to enroll courses during their new, albeit unwanted, free time. Imagine a low-income disabled adult receiving a notice that says that their publicly-funded health insurance, Medicaid, is no longer going to cover ambulance rides or amputations or eyeglasses. Imagine fewer highway patrolmen on the streets making longer delays for emergency assistance and prisons with three inmates per cell and overworked guards who are working extra hours because of a state hiring freeze.

These scenarios might well have become reality in our state if the American Recovery and Reinvestment Act (ARRA) had not included $137 billion in fiscal aid to state governments, roughly $3.5 billion of which will flow to North Carolina over three fiscal years.

These are choices that would have devastated people's lives. Moreover, making these choices would have dealt a blow to an already fragile economic recovery. Without this assistance the state would have had to lay off workers, cut services or raise taxes even further - all of which would have harmed the state's economy.

Nationally, it is estimated that the fiscal aid to the states is saving some 900,000 jobs - by directly staving off public sector layoffs for jobs like teachers and prison guards as well as saving private sector jobs that would be lost when laid-off public workers and contractors are forced to cut back their spending.

One year ago when the recovery act was passed it was impossible to know exactly what the financial status of the states would look like at this point. But it is now clear as states prepare their budgets for the upcoming fiscal year that now is no time for the federal government to retreat. State budgets, including North Carolina's, are not likely to recover anytime soon though most of the fiscal aid to the states will expire in the next several months.

It is clear from examining recent recessions that recovery in state tax revenues lags months, if not years, behind the general economic recovery. Sales tax collections may be depressed for some time because of stubbornly high unemployment and a return to a more normal national savings rate. In addition, personal and corporate income tax losses can be carried forward for several years holding down payments from these taxpayers. Finally, higher demands for some state services won't recede to pre-recession levels for many years. The state's portion of the Medicaid program's cost is already $250 million over budget during the current fiscal year and community college enrollment is 20,000 students higher than the budgeted projection.

The sluggish revenue forecast combined with ongoing spending pressures means that the state will face budget shortfalls for the foreseeable future. That's why it's critical that Congress act, sooner rather than later, to extend the state fiscal relief that was part of the original recovery act - 900,000 jobs hang in the balance. The jobs bill passed by the US House of Representatives at the end of 2009 included approximately $46 billion in additional state fiscal relief to help with Medicaid costs and to prevent cuts to education funding. The Senate's more scaled-down jobs bill does not contain additional fiscal aid to states. Regardless of whether or not additional fiscal relief is included when these two competing bills are reconciled or if it is addressed separately, it must be done.

Perhaps state Senate Majority Leader Martin Nesbitt of Asheville said it best when he remarked at a recent public event that he has no doubts that the federal stimulus funds saved the state of North Carolina from an economic meltdown last spring. He was absolutely correct in his assessment. The threat of that meltdown has not ended, however, and it's up to Congress to do the right thing. If they do act, then North Carolina's leaders can leave the worst scenarios to their imaginations and stay focused the state's responsibilities like educating our children, keeping our communities safe and protecting our environment.

Elaine Mejia is the Director of the NC Budget & Tax Center

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This entry was posted on Wednesday, March 3rd, 2010 at 1:20 pm and is filed under Progressive Voices. You can follow any responses to this entry through the RSS 2.0 feed.