SC Policy Council on "Downside of Stimulus"

 The following article appears on the SC Policy Council website:

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Lawmakers Ignoring Downside of Stimulus

Ashley Landess
April 29, 2009

The Legislature and the media claim that without stimulus dollars, teachers and law enforcement officers will be fired and prisoners will go free. The speaker of the House claims that lawmakers cannot fund education or protect citizens unless they have hundreds of millions of federal dollars.

Gov. Mark Sanford expressed concern about spending the one-time money on recurring programs. The speaker says the governor is “out-of-touch” with ordinary South Carolinians. What he doesn’t say is that the House passed the largest budget in state history, spending millions on programs that have nothing to do with law enforcement or classrooms.
Legislators cut most programs from the state’s general fund, which is the smallest of the three funding categories. The “other funds” category contains $7 billion from fees and fines. Perhaps the speaker knows how that money is spent, but most lawmakers do not. “Other funds” are not debated, nor opened up for legislative review. At least one such program continues to receive millions even though the initial project was completed and the program has no current legislative authority to spend money.

The speaker conveniently argues that Congress made a terrible mistake with the bailout, and now we might as well spend the money. Ironically, Congress rushed to spend trillions of dollars with little discussion about consequences. The S.C. Legislature is about to make the same mistake.

Before the speaker and his colleagues expose taxpayers to even greater risks, they should fully and honestly debate the dangers. They should disclose every dime of state spending and review every program to determine if it is more critical than classrooms and law enforcement.

There are many legitimate concerns to discuss. For example, the stimulus money will be gone in two years, and there is no plan for how to pay teachers and lock up prisoners without it. Also, a group of economists that includes the well-renowned Art Laffer concluded that stimulus spending will cost our state tens of thousands of jobs — far more than the speaker cites. Those consequences should be addressed.

In a recent editorial, The State referenced the Laffer study as one Gov. Sanford “trotted out.” Actually, the report was released by the S.C. Policy Council, an independent research organization, and it projected between 24,800 and 34,850 jobs lost.

Speaker Harrell and The State focus on between 3,000 and 5,000 government jobs they claim would be lost without spending budget stabilization money — jobs that could be funded by cutting other programs. They don’t concede that some economists predict a much worse scenario that includes tens of thousands of private and public sector jobs lost. If those figures are even half right, the impact would be devastating.

The speaker and The State believe increased government spending will improve our economy, but not all economists agree. Some make a compelling case that stimulus spending will crowd out the private sector, leaving businesses with higher costs and less capital. Most jobs created with one-time government money are temporary, and come at the expense of more stable, permanent jobs in the private sector.

If legislators spend stimulus dollars to pay teachers and fund prisons, they will have to choose in two years between cutting classrooms and closing prisons anyway, or passing a multibillion-dollar tax increase. Absent spending cuts today, we will have higher unemployment or higher taxes in two years — and very likely both.

Despite cries of bare-bones budgeting, lawmakers spent money on an “economic development” plan devised by Speaker Harrell, three other legislative leaders and three college presidents. They have poured hundreds of millions of dollars into venture capital funds, empty buildings and startup money for “knowledge-based” companies. They are spending millions on tourism marketing, paying the salaries of lobbyists and consultants and funding the Clemson Spring Dairy Exhibition — all while threatening to close down prisons and release criminals.

Lawmakers should chop all that spending. Economic development is never the job of government, much less at the expense of classrooms and law enforcement. The speaker’s plan to run the economy from Columbia has robbed small businesses of capital to expand and hire South Carolinians, and now our state has the third-highest unemployment rate in the nation.

Government spending has not produced prosperity — legislative leaders have already proved that. Taxpayers can’t afford to fund companies chosen by politicians and bureaucrats when their own jobs are at risk.

Legislative leaders are playing defensive politics to deflect attention from their own irresponsibility. Our Legislature controls how all revenue is raised and how it is spent. Lawmakers are responsible for the economic mess in South Carolina, but instead of making that right and passing a sound budget, they are attacking the governor. They are also risking huge tax increases and tens of thousands of jobs. We cannot afford that. South Carolinians have to make hard choices at home, and they deserve better from their elected officials.
Nothing in the foregoing should be construed as an attempt to aid or hinder passage of any legislation. Copyright 2009. South Carolina Policy Council Education Foundation, 1323 Pendleton Street, Columbia, South Carolina 29201.