Scrivener.net

Tuesday, September 08, 2009

Why is so much of the "stimulus" money going to state and local governments? 

Casey Mulligan asks the question (both on his own blog and in the NY Times):

... by the time the stimulus law was being debated this January, the private sector had lost four million jobs during this recession, whereas state and local government employment had grown by 124,000. (Since then, state and local government has lost 14,000 jobs –- for a cumulative gain of 110,000 jobs –- while the private sector lost another 2.9 million.)

In the average month, over two million private-sector employees were let go, as compared to 96,000 state and local government employees...
That's an over 20 to 1 ratio, and yet...

... one-third of the aid in the “stimulus” law is aimed at state and local governments. This allocation ... vastly overstates the importance of state and local government in the national employment picture, and thereby diminishes the law’s potency as a stimulus to national employment.

... an effective stimulus law would have allocated state and local government something from 4 percent (its share of layoffs) to 14 percent (its share of employment) of its funds.

Economic analysis does not support the extraordinary importance afforded state and local governments by the stimulus law, but political analysis might.

In particular, patronage jobs are an important part of the political participation machine. Perhaps when members of Congress were talking about “saving jobs” as they authored the stimulus law, they were talking about 535 specific jobs — their own!
Donald Boyd of the Rockefeller Institute of Government provides more data [.pdf], including state-by-state numbers, noting...

... the dropoff in employment in the private sector has been extraordinarily sharp (a cumulative decline of 5.9 percent), while state and local government employment each have risen by 0.6 percent ...

While this may seem surprising, the broad pattern is typical of recessions ...

Local government accounts for about 74 percent of state-local employment ... local government tax revenue tends to be more stable than state tax revenue, in large part because of heavy reliance on property taxes. Property tax revenue for the nation as a whole historically has been very stable, even in this recession with its significant decline in real estate values....

Several ... state and local government sectors have counterparts in the private sector, and they have proven resilient there as well ... private sector employment change in several health, education, and social services industries, have grown since the start of the recession even as private sector employment as a whole has fallen by nearly 6 percent ... in each case, the demand for the related services — education, health care, and social services — is stable or rising in recessions.

In 30 states, combined state-local employment rose from April-June 2008 to the same period a year later...

Local government employment so far has been more resilient than state government employment, with gains in 34 states and declines in 16 states in the April-June 2009 quarter versus a year ago...

State government employment was down in 26 states and rose in 24 states in the April-June 2009 quarter versus a year ago...

It is common for state and local government employment to rise in recessions, or if it falls, to decline only after a substantial lag ... in each of the last six recessions (including the current one) ...[t]he broad pattern has been for state and local government employment to increase even as private sector employment falls...
And those were five recessions without any stimulus to protect public-sector employment.

So maybe Professor Mulligan has a point: why is so much of the stimulus going to state and local politicians, er, governments?