States Craft Plans to Stimulate Economy

States aren't waiting for help from Washington, D.C., to boost their economies. More than half a dozen have passed or proposed their own economic stimulus packages designed to reinvigorate local businesses with new construction, loans to hometown banks and other job-creating activities.

The state efforts come as Congress considers a national economic stimulus package in the wake of the Wall Street collapse this fall. Among the options for Congress are extending unemployment benefits, sending more Medicaid money to states to boost the health care industry and launching a major new public works initiative.

Congress could pass its package in a lame-duck session this year, or it could wait until after Barack Obama is sworn in as president next Jan. 20. In the meantime, a handful of states are pressing ahead with their own economic revival plans.

"It's clearly unusual and very innovative. It's a great way to get state economies going again," said Sujit CanagaRetna, senior fiscal analyst for the Council of State Governments .

The governors of New Jersey and California have summoned lawmakers back to their state capitols to take up their governors' economic stimulus packages. Florida, Ohio and Vermont passed plans earlier this year. And the governors of Oregon, Washington and Wisconsin are pitching their ideas for legislators to act on in January.

Illinois Treasurer Alexi Giannoulias, a former family banker, said he'll invest up to $1 billion of the state's money in local banks and credit unions that aren't eligible for the federal bailout of major banks and other financial institutions. The investments make sense for the state, because it can get a better rate of return than it would from Treasury bonds, commercial paper or other typical investments, he told Stateline.org.

But the move is also designed to help people who go to these banks for loans cope with the economic downturn.

"It's tougher for people who want to start a business or buy a house to tap into a line of credit, and that's a grave concern for me," he said. Already, 31 of Illinois' 102 counties have unemployment of 8 percent or more, and a tight credit market could make that worse, he said.

New Jersey has undertaken a similar effort to help its financial institutions, and Michigan Gov. Jennifer Granholm (D) is working out a plan to loan out up to $150 million to local banks, who would, in turn, make loans to Michigan residents and businesses.

CanagaRetna said state stimulus packages need to be "timely, targeted and temporary" to be effective. That guarantees that money will be spent quickly and people will get work right away, he explained.

But the economic downturn is doubly troublesome for states. The states with economies most in need of reviving are also the ones with treasuries that are most likely to be empty - too empty to be doling out stimulus packages.

The crisis that hit Wall Street in September - and led to a $700 billion federal bail-out effort for major financial institutions - only worsened states' rapidly deteriorating financial situations. The collapse of the housing market coupled with high energy prices already had led to a sharp decline in tax revenues just as states were finally finding their financial footing after the 2002-2003 downturn.

One way cash-strapped states are paying for stimulus packages is through bonding, said CanagaRetna.

States have repeatedly turned to borrowing money during the anti-tax climate of the last decade. For instance, state net tax-supported debt doubled in that time, growing from $198 billion in 1998 to $398 billion in 2007.

California Gov. Arnold Schwarzenegger (R) wants to get a jump on transportation construction slated for next year by using next year's bond proceeds now. Ohio voters approved the final piece of the state's $1.6 billion stimulus package, when 70 percent of them approved on Nov. 4 $400 million in bonds for environmental clean-ups.

But just two months ago, states could barely sell their bonds on the open market. Things got so bad, Schwarzenegger approached the federal government about the possibility of California borrowing $7 billion to keep state government running. Since that scare, though, there's been a "sea change" in the bond markets, and states have once again been able to sell their debt, CanagaRetna said.

The other advantage to bonds is that they fund projects that themselves enhance a region's economy, like roads, bridges, rail lines and sewer systems.

"One of the most important investments we can make during a slow economy is in public works projects, such as transportation," said Oregon Gov. Ted Kulongoski (D) at a legislative hearing Nov. 10. "We have a long bipartisan tradition of investing in transportation in good times and in bad times.Building roads, bridges and public transit is good for the economy and our citizens by putting people back to work," he said as he introduced $1 billion in new transportation projects.

Kulongoski's plan would include tax hikes on gas and cigarettes, higher vehicle title fees and $600 million in new bonding.

New Jersey Gov. Jon Corzine (D), on the other hand, is trying to spur the economy without any new taxes. He urged lawmakers in mid-October to give small businesses a $3,000 tax credit for each new employee they hired. And Corzine expedited construction projects for tollways, schools and utilities.

"The projects are advancing capital plans already authorized, drawn and funded. We are only moving them forward by expediting the shovels in the ground and boots on the pavement because we need to provide employment now. These efforts will simply help bridge the recession," he said.

California Gov. Arnold Schwarzenegger envisions new hospitals, patched roads and water projects as key components of getting the Golden State's economy back on track. He called on legislators to help businesses move even quicker by temporarily setting aside some environmental regulations and making labor laws about overtime and meal breaks less strict.

"We don't have the luxury of waiting for January when I make my budget proposal or hold my State of the State Address," Schwarzenegger said. "We have a dramatic situation here and it takes dramatic solutions and immediate action. We must stop the bleeding."

Washington Gov. Chris Gregoire (D) is crafting a state economic stimulus package and will likely unveil it in late November or early December, spokeswoman Laura Lockard said.

Wisconsin Gov. Jim Doyle (D) and Democratic lawmakers are working on a plan to boost infrastructure projects, help homeowners facing foreclosure and improve lending. Their plan is expected to be taken up when legislators convene in January.

The new proposals come on the heels of stimulus packages that made it into law in three other states.

  • As part of Gov. Charlie Crist's (R) "Accelerate Florida" program, Florida has sped up work on $1.4 billion of spending on 179 road projects, according to his office . State officials claim the work will employ 39,000 people and lead to $7.84 billion in new economic activity in the state, good news in a state racked with job losses.
  • Ohio Gov. Ted Strickland (D) hopes the Buckeye State's stimulus package will create 57,000 jobs. The $1.6 billion initiative includes money for road and bridge projects, internships for college graduates and new environmental clean-up efforts.
  • Vermont Gov. Jim Douglas (R) convinced legislators late in session to approve bonds for transportation repairs, mortgage assistance programs and a sales-tax holiday to draw shoppers from Canada and other states. The five-year transportation component boosted road and bridge projects by $12 million this year, an increase of roughly 10 percent.

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