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This morning, Steve Pearlstein criticized plans to give aid to states before offering his preferred vision of the process:
To me, it suggests that the policy goal should be focused less on short-term stimulus than on closing the states' structural budget deficits. States that take credible steps to close the gap over the next few years ought to rewarded with federal money to help laid-off government workers or maintain vital services until the economy rebounds. States that don't should be allowed to fend for themselves. Think of it as the public finance version of the "stress test" used to stabilize the banking sector, or the education department's successful "race to the top."For a response, I got in touch with Jon Shure at the Center on Budget and Policy Priorities, one of the key advocates for increasing aid to states. Unsurprisingly, he differs with Pearlstein, arguing that refusing state aid is like denying water to a burning building until it is brought up to code. "The point is that there is a crisis right now, and states need help," Shure says. "There are things that states need to do to avoid structural deficits, but withholding funds now isn't going to help that situation."For instance, one factor driving states' fiscal crises was their willingness to cut taxes when times were good -- and property values were high and increasing. While this unbalance needs to be corrected with a reasonable increase in taxes, raising taxes during a recession will just drive an economy-hurting cycle. Further, the amount of aid to states under consideration wouldn't return them to their 2007 levels of expenditure. States are already making hard choices and cutting their budgets, but this money would allow them to keep vital services moving forward -- and people employed."The crisis we're facing today isn't about states; it's about people," Shure says.
-- Tim Fernholz
