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Federal Dollars Should Create Jobs, Not Plug Budget Potholes

January 30, 2009 By Lee Egerstrom, Economic Development Fellow

This past week found Minnesota state and local government officials scrambling for ways to use federal economic rescue funds to plug budget shortfalls to more thoughtful pausing to reflect on best ways to grow the economy.

These two objectives don't need to contradict each other. But they can; the helter-skelter scramble in states all across the nation may find local and state governments undermining federal economic recovery efforts.

If state and local efforts lead to more job losses, budget balancing at local levels will undo federal efforts. If state and local actions lead to more people going without health insurance, the burden of meeting basic healthcare needs are shifted to others' insurance plans and to local budgets - a certain drag on the overall economy.

Eliot Seide, executive director of AFSCME Council 5, reminded us of these conflicting objectives following Governor Pawlenty's budget message early in the week. Reduced state aid to local governments is certain to mean more job losses piling on losses from the private sector; removing 84,000 adults from state health insurances will add to local and personal expenses, and giving away more revenue sources, or tax breaks, without regard to fairness and ability to pay digs budget holes even deeper.

Part of the governor's budget proposals included a wage freeze for public employees. "If the governor wants a wage freeze, then he needs to propose no layoffs," Seide said.

Minneapolis Mayor R.T. Rybak, in an Associated Press account published Thursday in Minnesota newspapers, also pointed to the conflict in objectives. His meetings with President Obama's economic team members make clear the recovery package now moving through Congress is designed to create jobs. "They made it absolutely clear that mayors should not expect the stimulus to fix their budgets," he told the AP.

It is difficult for state programs to restore recent job losses at Target Corp., Best Buy and other Minnesota based pillars of commerce. But we can help keep public employees working, providing services, paying taxes, and generating local economic activity with their average $38,000 annual wages.

Rachel Walker, policy analysis manager for the League of Minnesota Cities, notes that statewide municipal employment is down 6 percent from 2003 when an earlier state budget shortfall resulted in loss of state aid to local governments. And Becky Pizinger, communications coordinator for the Association of Minnesota Counties, has data showing a comparable 2,200 full-time jobs, or 6.3 percent of employment, have been lost in county governments since cutbacks in 2003.

Fixing messes is never easy. Rare is the state or local government that is given the wherewithal to appropriately plan for something like a severe national recession. Seizing the opportunity to invest in infrastructure - especially public works projects - is a way to grow jobs and produce for the long-term benefit of society.

But at least one thoughtful suggestion has come over the transom, but it may be far too late for local and state officials to consider. A long-time Peace Corps and economic development expert suggested that local units of government, including school districts, use any flexible funds from federal aid to pay all or most costs for employees' health insurance.

This would shore up local funds to maintain employment and in some cases increase employment at a time when jobs creation really is the remedy to what ails us. It might also be infrastructure building; it could be a transitional tool for moving Minnesota and America towards a universal health care system that ultimately needs to be addressed if America is to have a sustainable economic recovery.


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