"Scribblings" - An Occasional Newsletter from the Legislature 
By Rep. Thomas F. Koch Barre Town

Once again this week, I return to the talk of the Statehouse—the potential federal stimulus package and its effect on Vermont’s fiscal crisis.  On Tuesday, the state economists predicted a continuing recession, an additional revenue shortfall for the current fiscal year of $10 million, and a projected deficit for FY 2010 of $150 million.  Clearly, these are extremely serious times, and help from any source is welcome.  However, one must also be wary of the pitfalls.

On Thursday, United States House of Representatives Speaker Nancy Pelosi unveiled a proposed federal stimulus bill with a price tag of 825 billion dollars (that’s $825,000,000,000.00) over the next two years.  An initial handout from Speaker Pelosi’s office outlined what is contained in the package, which is divided into two sections.  The first section is a group of tax breaks in the amount of $275 billion; the second section is a long list of expenditures totaling $550 billion.

The tax reduction package features a tax credit of $500 per worker and $1,000 per working couple, together with other reductions designed to keep President-elect Obama’s promise to reduce taxes on 95% of all working Americans.  Not included is protection for middle-class Americans from the alternative minimum tax, a previously promised tax credit for businesses in the amount of $3,000 for each job created, or a tax increase for the top 5% of Americans, which was supposed to be the way to pay for the tax cuts for the 95%.

The following list, although incomplete for reasons of length, is what I believe is a rough but fair summary of the spending package.

Billions of $$                                   Purpose

   32          Investment in renewable energy technology

   16          Repairs to public housing, including energy efficiency retrofits

     6          Weatherize modest-income homes

   10           Invest in science facilities, research, and instrumentation

     6          Expand broadband internet access in rural and underserved areas

   30          Highway and bridge construction, reconstruction, and repair

   31          Modernize federal and other public infrastructure to save energy

   19          Clean water, flood control, and environmental restoration

   10          Mass transit and rail

   41          For local school districts for school modernization and repair

   79           Increased aid to education to prevent cuts in existing services

    15.6       Increase Pell grants by $500 each

     6          Higher education modernization

   20           Health information technology

     4.1       Assistance for preventive care and to evaluate most effective care

   43           Increased unemployment benefits and job training

   39           Help in paying COBRA health insurance benefits for unemployed

   20           Increase food stamp benefits by over 13%

   87           Temporary increase in federal share of the costs of Medicaid

     4           Assistance for state and local law enforcement funding

A breakdown of these general categories is also available, but it goes on for about 14 pages, and even then, it is just a summary of the programs due for assistance and the general amount allocated to each.  Suffice it to say that I can’t think of any program or any agency that isn’t due to get some of this money.

On Friday, a member of Sen. Leahy’s staff testified in front of the House Institutions Committee, of which I am once again a member.  He pointed out that what we had seen was the House version of the economic stimulus bill and that the Senate would have a different—probably slightly larger—version.  The two versions will have to be reconciled before going to the president for signature.  He was unable to offer any further details, especially details about how much of this money will come to Vermont, when it will come, and what the rules for spending it will be.

So let me think out loud briefly about this bill and invite you to share other thoughts and reactions with me as the legislature gets ready to make decisions:

• In the first place, I don’t think very highly of this bill, and if I were a member of Congress, I would vote against it in its present form.  Although there are many worthy projects that will be funded, I don’t think we can spend our way out of our problems.  This stimulus package comes on top of last year’s stimulus checks in the amount of $300 or $600 for most Americans, an ill-advised and mismanaged financial bailout in the amount of $700 billion, and a bailout for auto makers.  And it’s all borrowed money!  How much can we expect our children to pay so we don’t have to feel pain during this admittedly very severe recession?
• However, I am not a member of Congress, and some form of this bill will pass.  Vermont will be in line to receive many millions of dollars, and I don’t know anyone who proposes to say "Thanks, but no thanks."  So the key will be using the funds effectively and responsibly.
• We need to be careful not to do our state’s budgeting on the assumption that the money will simply be available. Budgeting on hope and assumptions rather than on hard facts is dangerous.  When the money arrives, it will come with many strings attached, and we need to know in advance what those strings are.  Sen. Leahy’s aide on Friday just did not have any answers for us in this regard, because the answers don’t exist yet.  We can’t spend the money until the check falls out of the envelope, and we know exactly what the rules are for using it!
• The stimulus package is designed to support many worthwhile projects—things like highway repairs, health information technology, and school modernization.  Many of these things are items that Vermont needs and has been unable to afford.  But we also need to be careful that everything we do spend stimulus funds on are projects we want and need, not things that we are buying just because it’s "free" money.
• Another major purpose of the stimulus bill is to put people back to work by creating something in the neighborhood of three million jobs, thus reviving the economy.  One question we need to consider is what will happen two years from now, after the largest public works program since the building of the pyramids has been completed.  Will these jobs will still be needed, and will the economy still be revived?  Or will workers then be laid off, causing the economy once again to slip into recession?  A good deal of economic analysis is called for at this time.
• We need to remember that these are one-time funds; we will not be getting them every year.  Therefore, it is important to spend them on one-time projects, rather than starting or expanding programs that will require continuing support from state funds once the one-time funds are gone.  One example would be Medicaid.  The bill proposes to increase federal support of the Medicaid program for two years; it would be a mistake to expand Medicaid coverage with these funds in a way that would require increased state support when the federal funds are gone three years down the road.
• Some of these funds are likely to come without the normal requirement for a state or local match.  The word is that highway construction and modernization funds may waive the usual match requirement, because many states will be unable to come up with the matching funds, in which case the federal funds would go unused.  However, many other programs in the stimulus package will probably require some degree of match, and we need to be able to meet those match requirements if we are going to spend the money.
• In a time of decreasing state revenues, one needs to question our ability to raise the funds necessary to meet the federal match requirements.  This may be the best use for any state stimulus package.  Otherwise, I question—at least for the present—whether a state stimulus package, such as the $150 million package proposed by Speaker Shap Smith, is needed.  We need to see how much we will be getting from the feds, how much we can reasonably and responsibly spend, and whether a supplemental state borrowing package can make enough of an incremental difference to be justified.  If not, then the money it would take to pay off the bonds required for a state stimulus package will be best left in the pockets of the taxpayers.