House approves jobs bill: Do states deserve $26 billion more stimulus?

The House of Representatives cut short its August recess to return to Washington and pass a state jobs bill Tuesday. Supporters say the bill is much-needed additional stimulus; detractors argue that it has too little money to really make a dent in states' budget problems.

It's the latest package of federal stimulus money, and it has sparked the usual partisan debate: Is more aid to state governments really needed, and will it truly add jobs to the US economy?
 
Backers of the $26 billion measure, which passed the House of Representatives by a vote of 247 to 161 on a largely party-line vote Tuesday, say that states deserve extra financial support amid a historic cash crunch this year. And they say it means jobs, because it will reduce the number of state-employee layoffs.
 
President Obama urged the House to pass the bill in a Rose Garden speech before the vote Tuesday. The bill has already passed the Senate.
 
But critics say it's yet another example of wasteful spending, misleadingly called "stimulus," that shouldn't be happening. Some tough budget shortfalls may be ahead, but schools and state governments can manage without that $26 billion, they argue.
 
Here's a look at the pro and con arguments – part of a larger debate about federal stimulus:
 
Yes, states should get this help.
 
The housing bust and financial crisis on Wall Street weren't created by state governments. Now, through no fault of their own, states have had to confront a multiyear downdraft in tax revenues. And, with requirements to balance their budgets, they can't close budget gaps by borrowing.
 
The new state aid will include $16 billion in Medicaid funds, a key area where states have seen costs rise. During the recession, more Americans have lost private-sector health insurance and are turning to Medicaid for health care coverage.
 
For the states, this is not a Democrats-versus-Republicans issue. Some 47 governors representing both parties signed a letter urging an extension of Medicaid assistance (called the enhanced FMAP program) that was included in President Obama's 2009 American Recovery and Reinvestment Act.
 
"Passing a two-quarter extension of FMAP as soon as possible is the best way to help states bridge the gap between their worst fiscal year and the beginning of recovery," the National Governors Association wrote in a June letter to Senate leaders. Without the Medicaid money, states say they would have to find other ways to fund their portion of the Medicaid program, and thus would need to cut spending on other services that are popular with voters.
 
The other part of the bill is $10 billion in aid designed to help states avoid teacher layoffs. In Colorado and elsewhere, school districts "are facing the deepest budget cuts in memory," with some even shifting to four-day weeks, said Jared Polis (D) of Colorado on the House floor Tuesday.
 
A basic premise for supporters is that the bill accomplishes two good things: reducing the size of cutbacks in state services, and stimulating the economy. Proponents say without the Recovery Act, and follow-on measures such as this one, there would be less cash flowing through the economy, and America's unemployment rate would be even worse.

No, states can do without it.
 
Opponents of the legislation say the Recovery Act and other stimulus measures aren't living up to their promise of job creation. They argue that what's needed to lift the job market and revive private-sector confidence, rather than more deficit spending by the federal government, is low tax rates and relief from uncertainty about the direction of federal policies.
 
The bill is paid for by tax changes that are hailed by President Obama as reducing incentives for employers to shift jobs overseas. But in a Tuesday statement, House Republican leader John Boehner (R) of Ohio called it a "job-killing tax hike" on US employers.

"Everyone knows that state budgets have been hit hard and no one wants teachers or police officers to lose their jobs," Mr. Boehner said. "But where do the bailouts end? Are we going to bail out states next year and the year after that, too?"

In fact, some critics of the bill argue that the threat of 300,000 teacher layoffs, without the bill, is exaggerated. Columnist Charles Lane at the Washington Post calls this an upper-end estimate, put out by teachers unions and school administrators, and argues that the real number of jobs at stake "could be as low as 100,000."

Those are still real people who would lose jobs. But with more than 3 million teachers in US schools, he argues that the student-teacher ratio could remain below 16 to 1.

Critics of the bill also say the states should use their current fiscal crunch as a wake-up call to reset out-of-control pensions and benefits for public workers.

One important fact can cut both ways in the jobs-bill debate: The $26 billion won't come close to filling the hole in state budgets. The governors association says the states have cut spending by about 11 percent since 2008. But the group says a large gap between spending and revenues remains to be closed: about $127 billion for the period from 2010 to 2012.
 
To supporters of the new legislation, that shows that Washington is simply offering some emergency help, not a free pass. To critics, the fact that states have already been making hard decisions suggests that the sky wouldn't fall if they had to do without the extra help.