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Podcast: The Recovery Act is Boosting the Economy

December 14, 2010

In this podcast we will discuss the latest information showing that the Recovery Act is creating jobs and boosting the economy. I’m Shannon Spillane and I’m joined by Michael Leachman, Assistant Director of the Center’s State Fiscal Project.

1. Michael, it’s been almost two years since Congress passed the Recovery Act. Many people may not realize that it’s still boosting the economy and creating jobs. Luckily, the Congressional Budget Office, or CBO, continues to track the impact of the Recovery Act. What does their latest report tell us about the Recovery Act and jobs?

Well the new report estimates that there were as many as 3.6 million more jobs in the economy as of September than there would have been without the Recovery Act.

CBO also estimates that the Recovery Act reduced the unemployment rate by as much as 2 percentage points.

2. The Recovery Act provided aid to states to reduce the severity of cuts in education, health care and other key services that states provide. This was a significant boost for state economies because when states cut spending, they lay off workers and cancel contracts with vendors, and that ripples through the whole economy. Is that help for states still flowing and how are things looking for states?

States continue to feel the effects of the recession. Revenues are down about 12 percent since before the recession. And that critical aid from the Recovery Act – it’s running out and it’ll be mostly gone by the middle of next year. As a result, we expect next year to be the worst year yet for state budgets.

And unfortunately that’s not all. It’s possible that the federal government could make things even worse next year for states. For example, House Republican leaders recently proposed to cut a part of the federal budget that’s called “non-security discretionary spending.” And they want to cut that by more than 20 percent. And that cut would just increase the pain at the state level and further slow the economic recovery.

3. How would that cut hurt states and slow the economy?

The House Republican proposal would cut deeply the part of the budget that funds education, medical and scientific research, transportation and other domestic priorities. Much of that money is spent through state and local programs. Cutting it by 20% would mean $32 billion less for state and local governments substantially reducing their ability to provide crucial services to millions of Americans. Such cuts would make an already bad state and local budget situation worse, and would further slow an already tepid economic recovery.

4. What’s the bottom line?

Two points: First, the Recovery Act has significantly boosted the number of jobs in the economy. Without the Recovery Act, millions more workers would either be unemployed or struggling to get by on less income.

Second, the federal government should provide more relief to states because the aid provided by the Recovery Act is running out and the economy is still fragile. But if they don’t, at the very least they should not make things worse, as the budget proposal from House Republican leaders would do.

Thanks for joining me, Michael.