Tag Archives: Texas Governor Rick Perry

Schools at the edge of the stimulus cliff

Last year’s $787 billion stimulus included $100 billion for education meant to cushion state and school district budgets. As anticipated, state and local revenues haven’t rebounded and federal funds will be spent at the end of the school year. An analysis done by Rutgers University shows the “largest-ever federal infusion of education money” will leave states in the same boat as last year, forced to choose some mix of tax hikes and spending cuts.

When faced with unpalatable options states may find they are open to innovation: allowing more competition through charter schools and vouchers to bring down public school spending.

Interestingly, there is a mix of opposition to the next federal infusion of $4 billion in “Race to the Top Funds” (RTTT).

Some teachers’ unions oppose RTTT because funds require states institute more charter schools and “pay for performance” requirements. Texas Governor Rick Perry rejects Race to the Top for different reasons. Federal money (whatever its intent) means more federal rules, higher costs, and less state and local autonomy to set education policy. Texas likes its state education standards and the state would be penalized for not adopting the federal rules that come with accepting RTTT grants.

For RTTT to be an improvement over the top-down standards of No Child Left Behind, funds must not prop up the status quo, but be used to foster real competition and variety in the provision of education.

(2/9/10 Update: For more on the subject of education and competition see our recent Mercatus on Policy with Jerrod Anderson and Johan van der Walt.)

Stimulus II: Just Say No

Congress is, incredibly, considering a second stimulus. The reason: it needs to help states with the problems it helped exacerbate with the first stimulus, as the Wall Street Journal notes. (Hat tip: Matt Welch Reason Hit and Run).

The WSJ explains, gaping state budget deficits were not filled and fixed, but made deeper with federal dollars. States have expanded programs with money due to evaporate in 2011. Acceptance of federal money also means states surrender budgetary control.

The Evergreen Freedom Foundation finds when Washington state accepted $820 million in education stimulus money it effectively insulated all but 9 percent of its $6.8 billion K-12 budget from cuts in 2011-2012. On top of this, nearly 85% of Washington’s Medicaid budget is exempt from cuts, as is 75% of its college funding. The upshot is states now have to scramble to raise revenues to support the spending the federal government imposed with the 2009 stimulus; or, make even larger cuts.

Some governors had the foresight to reject parts of the stimulus. Indiana Governor Mitch Daniels and Texas Governor Rick Perry said no to expanding unemployment benefits.  It was the right move. Expanded benefits mean more state spending on unemployment benefits. Spending that is ultimately passed on to businesses via payroll taxes that depress hiring and wages.

In effect, stimulus spending is accomplishing the reverse of its intent which was to stabilize state budgets, stimulate job creation, and economic recovery. What the stimulus does demonstrate nicely is the dynamics of interventionism, developed by economist Sanford Ikeda.

As Richard Ebeling describes it, when policymakers intervene into markets, markets get out of balance- generating surpluses, shortages, creating  losses or diminished profits, leading to misemployed resources. Rather than reject the intervention policymakers make a case for more interventions to address these  “market failures.”

This  process can continue for quite some time until it becomes unsustainable. Considering the U.S. has  been down this interventionist road for several decades, the real outcome of the never ending bailout  may be to discover our point of financial exhaustion.

Ancient History? State and local governments lobby D.C. for money

The Los Angeles Times reports St. Helena, California spent $150,000 on a lobbyist (more than Philadelphia or St. Louis) to help direct more federal funds to the Napa Valley city. It isn’t an isolated case, or a new story.

The incentive to petition for  federal funds  has been in place for more than a century. And since this period, it has been argued and debated, that federal grants are a means around The 10th Amendment, imposing the policy priorities of the federal government on the states.

(Indeed, this is the basis for various sovreignty amendments, Minnesota Governor Tim Pawlenty’s rejection of the health care bill, and Texas Governor Rick Perry’s opposition to the stimulus.)

As Chris Edwards writes in Downsizing the Federal Government, “Federal granting began during the late 19th century, expanded during the early 20th cenutry, and exploded during the 1960s….today there are 800 state and local aid programs ranging from Medicaid ($225 billion) to Boating Safety Financial Assistance ($120 million).”

In addition to imposing federal policies, grants, as intergovernmental aid, stimulate more spending on the state and local levels. Federal grants may feel like free money, but they come with strings and impose costs on state and local budgets.

Over the decades, states and local governments have grown addicted. The current revenue crisis in the states has only enhanced the temptation to petition Washington for more to fill shortfalls and maintain larger governments.

Opensecrets.org, shows state and local governments spent $41 million through June on D.C. lobbying. The Commonwealth of Pennsylvania put $740,000 towards lobbying over the past decade. Boone, North Carolina dedicated $40,000 in the past three years. Even the District of Columbia’s Mayors Office spent $20,000 to lobby Capitol Hill.

How do politicians feel about their constituents hiring additional manpower to direct more federal funds to local coffers? Rep. Howard McKeon (R-Calif.), a former mayor of Santa Clarita, was at first offended when his city hired a Washington lobbyist, but found they could be helpful, “It’s kind of a team effort. I’m certainly not omnipotent.”

Before putting a lobbyist on their books, local governments might want to pause and consider the full price of spending money, to ask for money, that will lead  them to need even more money in the future.