Wednesday, December 03, 2008

 

This recession needs many solutions

We started December with a confirmation that the country has in fact been in recession since December, 2007. The news came at the same time that Governor Strickland announced an additional $640 million shortfall in the current budget, which brings us to the recession scenario as outlined by the Office of Budget and Management last January. This recession has already lasted longer than most, Ohio’s unemployment rate of 7.3% has exceeded its height of 6.3% in 2003, and we are expecting a third consecutive year of tax revenue declines. Meanwhile, we are allowing the continuation of income tax cuts along with a host of other tax reforms that are yielding decreased revenues. Ohio is relying on federal aid to states and strong holiday sales to avoid more budget cuts, but holiday shoppers face a recession too. Governor Strickland acknowledged today that we will need multiple solutions. Our Rainy Day Fund can be part of that solution, but depleting the entire fund wouldn’t get us far past the current budget, not to mention the $7.3 billion deficit currently projected for the FY2010-11 budget if spending remains level.

Of course, Ohio is not alone in its budget situation. 43 states face budget shortfalls. According to the National Conference of State Legislatures (NCSL), in FY 2009, 20 states have cut a total of $7.6 billion, and 30 states have shortfalls of another $30 billion.

President-elect Obama met with current and in-coming governors yesterday, and it is expected that a stimulus plan will come shortly after Obama takes office and will include aid to states. Leaders of the National Governors Association (NGA) and NCSL made recommendations on how to strengthen our economy, including state aid to avoid program cuts in countercyclical and safety net programs and immediate infrastructure investments that create jobs. Ohio is using the latter strategy with its job stimulus plan which offers effective investments which can be rolled out relatively quickly.

The aid to states would potentially be quicker and more substantial than it was in the last recession. As proposed by NGA, most of the state aid would fund infrastructure projects and some funds would temporarily increase the federal share of Medicaid. States would welcome this stimulus considering that, unlike the federal government, they (mostly) cannot deficit spend. The funds would allow state programs to meet an increasing need for services as more families meet hard times. The prospects of state aid and Ohio’s job stimulus plan offer hope, and we need to continue to find additional approaches to maintain essential services and Ohio’s economy.

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