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February 06, 2009 09:14 PM UTC

The Bell sends Bennet letter on stimulus compromise

  • 11 Comments
  • by: TheBell

( – promoted by Colorado Pols)

When the Bell Policy Center learned that Sen. Michael Bennet was among a small group of senators working to fashion a compromise on the Senate’s stimulus bill, the Bell decided to send Bennet a letter offering perspective on stimulus proposals and their impact on Colorado. Wade Buchanan, president of the Bell, and Rich Jones, director of policy and research, collaborated on a letter, which was sent by e-mail. Here it is …

February 5, 2009

The Honorable Michael F. Bennet

702 Hart Senate Office Building

Washington, D.C. 20510

Dear Senator Bennet:

We welcome and respect your leadership as one of the senators negotiating possible changes in the economic stimulus package. We want to share our perspectives on several aspects of the package and their impact on promoting opportunity for all Coloradans.

We understand proposals to reduce or eliminate funding for various programs that help support low-income individuals and families are on the table. Specifically, we understand there are negotiations over efforts to reduce funding for the Federal Medical Assistance Percentage (FMAP), Title I Education grants, Child Care and Pell grants.  We want to share with you our desire that funding for these remain in the stimulus package.  

We presented a series of budget principles for Colorado policy makers to consider when making the more than $1 billion in cuts needed to balance the state budget.  The following principles are particularly relevant in considering what should be included in the federal stimulus package:

• Do no harm to the most vulnerable Coloradans.

• Take the long view and prioritize funding that promotes long-term opportunity.

• Use the federal stimulus money strategically by making investments that stimulate the economy in the short term and support public structures that underpin our long-term economic growth.

• Be cautious about tax credits or cuts to promote economic development because research suggests many of these are not effective.

One of the key provisions in the stimulus package is the temporary increase in the Federal Medical Assistance Percentage (FMAP). It is anticipated that Colorado would receive about $800 million in funding over the next two fiscal years under this provision.  That means we can continue to protect the most vulnerable Coloradans who need medical coverage while reducing the amount of state General Funds needed to match the federal funds.

This would help Colorado’s budget and free up General Funds for other purposes, such as maintaining funding for preschool slots or need-based aid for higher education.

We understand that Colorado would receive as much as $126 million in Title I education funds.  These would help fund programs in high-poverty areas such as Head Start.  We do not have to tell you how these programs not only help vulnerable students today but pay off over the long term in better academic achievement that closes achievement gaps and lowers drop out rates.

Likewise, increased funding for Pell grants makes college more affordable to students and helps offset what are sure to be increased tuitions at Colorado colleges and universities. Access to higher education is a key to increasing opportunity for low-income students in the short term and promoting economic growth in Colorado over the long term.

There is $2 billion in funding for child care in the proposal.  In Colorado, depending on the county, many parents who qualify for child-care assistance do not receive it.  As many low-income workers have their hours cut or pay reduced, they cannot afford their child care.  In many cases, lack of child care hinders parents’ ability to work or attend school.

There are a number of proposals to create new or expand existing tax credits.  Research indicates that general business tax cuts would be less effective in preserving or creating jobs than cuts aimed at low- to middle-income taxpayers.

Businesses are not likely to spend the money from the tax cuts now but instead will wait until demand picks up.  On the other hand, lower-income taxpayers are likely to spend the tax cuts immediately, resulting in increased demand and greater economic activity. Mark Zandi, lead economist at Moody’s Economy.com, calculated that every dollar in payroll tax cuts would generate $1.29 in GDP growth and refundable lump-sum tax credits would generate $1.26 in GDP growth. However, every dollar in corporate tax cuts would only generate $.30 in GDP growth.

We understand there are multiple factors that must be considered in shaping the overall economic stimulus package. We appreciate your leadership on this issue and urge you to act in the best interest of all Coloradans with a particular eye toward those hurt the most by the downturn.

Please call or email me with any questions or if we can provide additional information.

Sincerely,

Wade Buchanan

President

The Bell Policy Center

Comments

11 thoughts on “The Bell sends Bennet letter on stimulus compromise

  1. • Do no harm to the most vulnerable Coloradans.

    • Take the long view and prioritize funding that promotes long-term opportunity.

    • Use the federal stimulus money strategically by making investments that stimulate the economy in the short term and support public structures that underpin our long-term economic growth.

    • Be cautious about tax credits or cuts to promote economic development because research suggests many of these are not effective.

    Do you have a link to more details on what you recommend?  

    1. Bell’s letter shows how frozen in place the liberal ideology is when the U.S. and world economies are adjusting to the new realities of a long-term recession, and in many markets, a depression.

      The assumptions implicit in Bell’s letter reflects the unreallistic view that the recession will be short-lived and that Washington and London will make the world right again soon.

      They ignore the fact that nearly 30 years of prosperity have encouraged a huge spike in government bloat. And because Bell analysts never have had to cut bloat, they have no ideas about how the state, country or the world will have to adjust to our new, more restrictive economic realities.

      Everything Bell wants to protect is doable in times of prosperity. But with income tax revenues declining and likely to be depressed for years, we have to tighten our belts.

      Well-paid politicians and union leaders are trying to keep their jobs by misleading voters into thinking “we can afford that.” But voters (consumers and workers) know better. They already are voting with their pocketbooks. Thus, auto sales around the world were down 32% (Toyota) to 55% (Chrysler) in January. And most retailers reported very disappointing January sales.

      Because there is very little effective stimulus in Pelosi’s Pork Bill, no one with an understanding of economics is predicting an early recovery. Ignore Kudlow and the other hypes on CNBC. They are misleading investors and voters with misleading hype because their careers depend on it, not because they really think the economy is anywhere near turning around.

      And ignore the bear market rally. It won’t last long.

      Bell doesn’t define “vulnerable” Coloradans. Illegal immigrants? People with family incomes below $20k, $40k, $65k?

      Bell supports the greedy teachers unions. Change the laws so that schools can be administered more cost effectively, kids can stay in school more hours a day, and money isn’t wasted on tours, teams and special education for normal kids.

      In a depresssion, you don’t take the “long view.” You fight for survival and leave the long view for the more prosperous times we hope will return in three to five years.

      Use the limited stimulus money to create real jobs, not support ineffective and bloated institutions. Don’t invest in the long-term, focus on survival.

      Cut taxes, which will not cost that much because incomes are down for the highest income payers. Lower taxes will encourage spending by the actual taxpayers who are conserving their funds as any maker of capital equipment and luxury goods will tell you. As long as people who are paying 40% to 50% of their incomes in local and national fees and income taxes think their taxes are going up while their incomes are going down, they won’t spend.

      Taxpayers are the smartest consumers. They’re smart enough and energetic enough to make incomes that are taxed. And when times get tough, they cut their spending. Higher taxes will tell them that the economy has no chance of recovery, and they won’t spend.

      Tax cuts will tell the people who are most likely to buy products that create jobs (luxury cars, new houses, etc.) that the economy has a good chance of recovering. And they will resume their significant spending much quicker than people on the dole will.

      Economic signals are critical.

      Obama and the highly partisan Congressional Dems as well as Ritter and other Dem governors are signally caution. They’re telling the people who have the money to turn this economy around to “keep your powder dry. The Dems are screwing things up and the recession will be long and deep.”

      So, Bell, keep it up. Keep warning the people who have the disposable incomes to preserve their capital because things will get much worse before they get better. Keep telling smart consumers that you demand bad economic policies that make preserving capital more important than buying stuff.

       

      1. Are you in the same nation, same time, speaking the same languange?

        Almost thirty years of prosperity? Reagan, a few decent years with HUGE additional government expenditures.  Bushco 1, not at all.  Clinton, the best years of our economic lives PLUS cutting government and turning deficit shit to surplus gold.  Bushco II, a total joke.  His best months of job creation weren’t as good as Clinton’s.

        The rest of your self-spinning delusion could be used for a semester’s example of bad logic and statistics.  

          1. to the last 30 years’ worth of the economy.

            When you said

            In a depresssion, you don’t take the “long view.” You fight for survival and leave the long view for the more prosperous times we hope will return in three to five years.

            that was exactly right. However, your arguments that tax cuts have any stimulative effect fail both Econ 101 and the experimental results of the last 30 years. It’s government spending to make up for depressed consumer spending that does the trick.  

  2. Here is a note we sent out after the most recent announcement of budget cuts. It has a fuller description of the bulleted items you highlighted.

    BUDGET BASICS: Do no harm, stick to the facts and take a long-term view

    By Wade Buchanan and Rich Jones

    We got another dose of bad budget news on Tuesday. There will be significant cuts this year and next. They will be real, and they will hurt.

    Perhaps the best that can be hoped for is to minimize the damage, and by that measure, Gov. Bill Ritter and the Joint Budget Committee are off to a positive start.

    When the governor unveiled his proposed cuts for 2009-10, he didn’t take the easy way out. He didn’t propose across-the-board cuts or simply roll back every gain made in the last two years. Instead of a hatchet, he used a scalpel to suggest cuts he hopes will do the least harm to vulnerable Coloradans, preserve core services and protect public safety and health.

    Thus, Ritter didn’t propose cutting immunizations. He didn’t propose cutting need-based financial aid for undergraduates. He didn’t propose cutting indigent care for the mentally ill. He didn’t propose cutting existing prenatal programs. And he didn’t propose cutting school breakfasts or existing preschool slots for low-income kids.

    Setting priorities like that should be the model as the legislature now begins its work. Lawmakers must minimize the impacts on the neediest among us; do the least harm to long-term reforms in health care, education and prison recidivism; and keep alive programs that expand opportunities for kids and working families and help stimulate economic and business activity.

    Lawmakers must focus on the real effects cuts will have on families and businesses, on long-term economic competitiveness and on our future prosperity and opportunity.

    As they move forward, we offer some principles we think should serve as guideposts. We will be communicating them each and every chance we get to talk to lawmakers, our allies, the media and the general public.

    Do no harm to the most vulnerable Coloradans

    В·  Protect access to safety net services like Medicaid, CHIP, food stamps and unemployment insurance. Spend money to process increased caseloads in a timely manner, because these services not only help the people most hurt by the recession but also provide stimulus to the economy. Try not to cut provider reimbursement rates so low that doctors can no longer afford to serve eligible Coloradans.

    В·  Ensure lower-income people do not bear the brunt of fee increases, such as auto registration fees or tuition increases. Look for offsets. If fees are imposed, they should be based on ability to pay

    Take the long view and remember the state we are creating for the future

    В·  Prioritize expenditures that promote long-term opportunity or that research shows produce positive, long-term returns on investment, such as preschool, children’s health programs and need-based financial aid.

    В·  Concentrate economic development spending in areas known to provide long-term economic growth, such as workforce development, access to post secondary education, repairing infrastructure and expanding broadband capacity.

    В· When possible, use cash funds and reserves to mitigate General Fund cuts in this fiscal year. Budget cuts depress economic activity and counteract some of the stimulus efforts. In addition, maintaining General Fund levels protects the ability to grow back from the downturn in future years.

    Make decisions based on facts, not conventional wisdom

    В· Be cautious about tax credits or cuts to promote economic development.  Research indicates that many of these tax credits are not effective. While some businesses – especially small businesses – may warrant assistance in a bad economy, be careful about giving away scarce revenues to businesses or others for doing something they were going to do anyway.

    В·  Remember that research shows that corporate tax cuts have lower multiplier effects than expenditures that support lower-income families and unemployed workers.

    В· Look for areas to can gain efficiency without hurting services.  Outdated or underperforming programs should be changed or cut entirely.

    Take full advantage of the federal economic stimulus funds

    В· Make sure that programs such as Medicaid and unemployment insurance are structured in such a way that they take full advantage of the federal funds available. Let’s not leave any money on the table.

    В·  Use the federal stimulus money strategically by making investments that stimulate the economy in the short term and support public structures that underpin our long-term economic growth.  For example:

    В· Repairing or replacing bridges and highways that are in the worst condition stimulates the economy immediately, improves road safety and bolsters our ability to ship goods and products efficiently.

    В· Expanding broadband technology in underserved areas throughout the state creates immediate economic activity and enhances economic development opportunities in these areas over the long run.

    В· Modernizing our electric grid, investing in mass transit and training workers for jobs in the renewable energy industry provides short-term stimulus but lays the foundation for more efficient and environmentally sustainable energy use.

    Let’s not do this again – let’s learn from our mistakes

    The revenue shortfall is hard enough to deal with in its own right. In Colorado we have made matters worse with the many and often contradictory constitutional and statutory provisions that govern how we write budgets. Let’s not wait until the next crisis to fix them. Specifically:

    В· Colorado needs a realistic rainy day fund.  Such a fund would not have prevented these cuts, but the cuts certainly would have been less severe.

    В·  Let’s change or eliminate the so-called Arveschoug-Bird limit on General Fund expenditures. Eventually there will be a recovery.  But Colorado’s General Fund (and the public structures it supports) will not be able to rebound with the economy because of Arveshcoug-Bird.  Current projections show the ratchet in this limit will make permanent at least $1 billion in cuts to the General Fund.

  3. taken in its entirety, it remains on one side of a political divide, so the bigger long-term question is how to move or erase that line.

    Your arguments about the relative value of stimulus spending that goes into the hands of lower-income people helps. More explicit analyses about the value of long-term investments in human capital and infrastructure are going to be helpful as well.

    The ultimate challenge is how to take a country with a right-of-center zeitgeist, with many adherents to an individualistic rather than systemic-collectivist ideology (with the word “socialism” mounted on a turret ready to be aimed at every form of systemically oriented policy designed to produce a collective benefit), and move it in a direction which will make it more amenable to proposals such as the ones you outlined above.

    One consideration might be in the framing of proposals. When I read “do no harm to the most vulnerable Coloradans,” I thought, “that’s going to set off alarms for the large faction of Americans who have a viceral reaction to any hint of distributive justice.” Keeping the focus on how that commitment serves the interests of those who are not the most vulnerable is, I think, an important component to the long term success of such propositions.

    Just some grist for the mill.

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