Podcast: State Budget Crisis Puts Economic Recovery at Risk

December 29, 2009

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Download the mp3 of this podcast (3:25)

In this podcast we will discuss the state budget crisis and what it means for the national economy. I’m Shannon Spillane and I’m joined by the Deputy Director of the Center’s State Fiscal Project, Jon Shure.

1. Jon, state budgets are in dire straits. Can you explain what’s happening?

Well, just like families, states are getting hit hard by the longest, deepest recession in memory. Revenues have collapsed but states still have to provide services like education, job training, transportation, and public safety. Not only do these things play a big part in people’s quality of life, but when states cut back on them, it can put a real drag on the economy. And that’s the last thing you want to happen to this fragile recovery we’re seeing.

2. How can states avoid these damaging cutbacks?

States need help from the federal government to avoid undercutting the recovery with deep spending cuts that damage the economy. Let me explain: every dollar states spend goes right back into the economy. States buy things, they pay salaries, they hire private contractors. When states cut back, people lose jobs. And I’m not just talking about government jobs – I mean private sector jobs too. Whether it’s the businesses where the people who work for the state government shop; whether it’s vendors who lose contracts or whatever else. It’s a ripple effect throughout the economy.

3. Aren’t states already getting this kind of fiscal aid from the federal government?

Yes, and that’s good. It’s helped prevent things from being even worse. In fact, studies say these dollars have created or preserved well over 300,000 jobs nationwide for teachers and other public-sector workers – probably many more than that, in fact, but it’s hard to measure the ripple effect throughout the entire economy. The aid to states also preserved crucial services in areas like public safety and transportation. It prevented hundreds of thousands of individuals and families from losing their health insurance.

4. So if states are getting money now, why do they need more help?

The economic crisis was even more severe than people expected. So the problem is the money states are getting now will run out before their economic troubles are over. That puts the recovery at risk. It’s important because Governors are preparing their budgets right now for next year, and if Congress doesn’t provide fiscal aid, the measures states will take to balance those budgets could stop a fragile economic recovery in its tracks.

5. Some people are concerned about adding to the federal budget deficit in order to provide this help to states. Are these concerns valid?

We do need to get deficits down in the long run. But trying to bring them down too fast risks undercutting this recovery. First things first: get people back to work. Our top priority needs to be getting the economy back on its feet. The bottom line is that Congress needs to provide more fiscal aid to states so we can keep this recovery moving in the right direction.

Thanks for joining us, Jon. For more information on the state budget crisis and the economic recovery, please visit CenterOnBudget.org.

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