Score one for economic reality: Public jobs matter

Public-sector spending feeds private industry, and creates new jobs in the private sector. To pretend otherwise is foolish.

Mike Owen
Mike Owen

Today’s New York Times editorial, “The Myth of Job Creation,” takes both President Obama and challenger Mitt Romney to task for their comments in the second debate about the importance of public-sector (government) jobs.

As the Times noted:

Public-sector job loss means trouble for everyone. Government jobs are crucial to education, public health and safety, environmental protection, defense, homeland security and myriad other functions that the private sector cannot fulfill. They are also critical for private-sector job growth in … fundamental ways.

At the Iowa Policy Project, we have made this case repeatedly in Iowa over the last few years, both in response to cutbacks in Iowa budgets and to misinformed political assaults on federal stimulus spending, which did a good job bridging revenue gaps in Iowa to prevent worse cutbacks in public-sector spending. See our latest “Iowa JobWatch.”

In Iowa, 1 in 6 jobs is a government job, at the local, state or national level. How is it possible that roughly a quarter-million jobs in our state do not have an important impact on our economy? The answer of course is that they do. The lion’s share of those jobs are in local government, so they are scattered across the state. They are filled by our neighbors, buying goods and services from local businesses and keeping kids in our schools. As the Times notes, regarding comments by both presidential candidates suggesting that “government does not create jobs”:

Except that it does, millions of them — including teachers, police officers, firefighters, soldiers, sailors, astronauts, epidemiologists, antiterrorism agents, park rangers, diplomats, governors (Mr. Romney’s old job) and congressmen (like Paul Ryan).

As with shortsighted approaches in budgeting that attempt to resolve all deficit issues with spending cuts, instead of taking a balanced approach to both the spending and revenue sides of the budget ledger, our leaders make a mistake when they think all new jobs have to be in the private sector or they don’t matter. Public-sector spending feeds private industry, and creates new jobs in the private sector. To pretend otherwise is foolish.

It’s always good when a dose of fiscal and economic reality hits the public debate. But it is unfortunate that it doesn’t happen more often.

Posted by Mike Owen, Assistant Director

The bridge to recovery

The stimulus, or Recovery Act, clearly succeeded in bridging the gap in revenues caused by the recession.

There’s a whole lot of politickin’ going on these days and one of the targets is the American Recovery and Reinvestment Act, or ARRA, or the “stimulus.”

One of the points we made at the Iowa Fiscal Partnership during and after the adoption of the Recovery Act was its use as a “bridge” for state services. As we note on our IFP website, “economic stimulus measures need to be targeted, timely and temporary, to act as a bridge across the economic and fiscal valley of a recession.”

Recall that some in the Legislature, and some folks during the 2010 campaign season, complained that such use of “one-time funds” was a bad idea for ongoing services — that it would create a “cliff” in funding that, once exhausted, would leave the state on the hook for new responsibilities it might not be able to afford.

Late last week, the nonpartisan Legislative Services Agency shed new light on this discussion with a simple bar graph on the front page of one of its “Issue Review” reports, this one about Iowa state appropriations over time.

Iowa appropriations graph
Source: Iowa Legislative Services Agency, August 2012

Note the green portion of the bars, representing where ARRA funds filled in for lower state revenues caused by the Great Recession. No cliff emerged following the use of ARRA funds as state revenues (the red portions of the bars) rose. But note from FY2009 to FY2010 how state resources might have fallen without the ARRA funds. That potential cliff would have threatened state funding of education and health services that Iowans depend upon.

Clearly, the folks promoting one-time-fund orthodoxy were wrong, and the “bridge” analogy was spot-on.

The stimulus successfully bridged the gap in revenues to stop the critical loss of state services, and maintain the benefit of those services to the state’s economy.

Posted by Mike Owen, Assistant Director

Unreasonable fear about ‘one-time’ money

Using stimulus funds bridged a gap in revenues and kept Iowa out of a race to the bottom.

Mike Owen
Mike Owen

You hear about it whenever some Iowa politicians get near a microphone to talk about the budget.

Heard above much wailing and gnashing of teeth is a common complaint that Iowa used “one-time money” to deal with recession-driven budget challenges.

Well, thank goodness for (1) that one-time money and (2) the willingness of state leaders at the time, including then-Governor Chet Culver, to spend it.

The Des Moines Register gets it, and isn’t afraid to say so in today’s editorial:

Yes, Iowa did it by shifting money set aside in savings accounts for other purposes, and it used one-time federal stimulus money. That was the right thing to do. The alternative would have been to lay off police officers, teachers and state workers, making the recession even worse in Iowa.

The state is in better shape financially now. It has the money to pay for essential services it has committed to provide to Iowans. The Legislature and the governor should pay to carry out those commitments.

The Iowa Fiscal Partnership (IFP) has pointed out that the American Recovery and Reinvestment Act, (ARRA), the economic stimulus program passed in 2009, was designed to provide targeted, timely and temporary assistance to Americans in the recession. As IPP’s Andrew Cannon noted in a recent IFP report, “Catching Up: Context for 2012 Budget Decisions in Iowa”:

Andrew Cannon
Andrew Cannon

While there is certainly merit in reducing the use of one-time money for the continuing expenses of the state, one-time-fund critics sometimes let strict adherence to that concept get the best of them. For instance, Recovery Act dollars were used precisely as intended: targeted, timely and temporary relief so that states could continue funding critical services, such as K-12 education and health services to individuals and families. State revenues declined precipitously during the worst of the recession; the Recovery Act bridged that drop-off in revenues until a time when revenues improved as the economy regained strength. The same can be said for use of $38.7 million from one of the rainy-day funds since high unemployment and reduced revenues during the year must constitute the rainy revenue day that the fund was designed to cover.

Had the Legislature and Governor Culver chosen not to use the ARRA funds, it is reasonable to assume that the holes created in recession would be left unfilled in better times. This is because one of the priority pieces of legislation passed in 2011 was the creation of a “Taxpayers Trust Fund” to pay for new tax breaks, the fund to be built from revenues coming in at a faster pace than expected. The priority was not to sustain or restore services, let alone enhance them, but to restrain use of new revenues.

Using the ARRA money when it came, for its intended purpose to bridge a revenue gap caused by recession, kept critical services in place when they were most needed, and kept us off the pace of a race to the bottom. Thank you to The Des Moines Register for reminding its readers of that smart public policy.

Posted by Mike Owen, Assistant Director