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Federal Investment in the States Necessary Addition to Deficit

Category: Minnesota Politics
Posted: 11/18/08 13:16, Edited: 11/18/08 13:17

by Dave Mindeman

Looking at the next Minnesota legislative session is a daunting undertaking. Trying to figure out what to do with a looming budget deficit, that was essentially band-aided in 2008, has no good answers.

A recent report on the Metro Transit budget shows that decreasing auto sales, which means less transit excise tax collections, will result in an $80 to $90 million deficit in their budget.

An August analysis of state budgets showed then, that 29 states would have a cumulative budget deficit of $48 billion. Judging by the economic issues that have developed since then, you should probably assume more states are involved and the deficit numbers have at least doubled.

Options? Nothing good.

Increasing taxes risks furthur economic slowdown, although, a few targeted increases to meet specific funding mechanisms may be warranted.

Budget cuts would need to be so draconian that they could, by themselves, furthur slow down the economy. Government spending is often a vital stimulant to certain economic sectors.

And we still need to educate our children and provide at least a minumum social safety net.

Where do we go?

Since most states cannot deficit spend, we need the Federal government to provide some temporary relief. Bailouts for the banks and car companies are prime topics right now, but state governments need to be maintained as well.

A $100 billion "loan" from the Feds to the states would seem to be a critical measure. If Minnesota got $2 billion in federal help, the state could make some serious choices as to how to best stimulate our own economy.

Washington may have to deal with the "macroeconomics" of keeping the national engine working, but each state has its own unique set of circumstances that require strategic investing. And the best manager of those investments would be the legislature of that particular state.

Federal deficits are going to grow over the next few years.... not much chance to avoid it. Deficit spending is going to be a necessary evil until this economy turns around. The greater question is how best to use that deficit spending to move us back down the right road.

A Federal answer is certainly needed in the aggregate, but tapping 50 different state economic engines, in addition to the Federal, would be an efficient and effective adjunct.
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11/18/08 15:05
We'll also need good old-fashioned compromise, in the form of spending cuts and tax increases. Without tons of Federal money, that's the only way to balance our budget.
 

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