State governments out ahead of feds on stimulus

[December 11, 2008]  RALEIGH, N.C. (AP) -- Some states aren't waiting for that economic stimulus package to come down from Capitol Hill to help jump-start their economies.

At least a half-dozen states have started economic recovery initiatives of their own this year to fast-track public works projects, help emerging industries and give tax breaks or other financial assistance to seniors, the unemployed and both mortgage lenders and homeowners.

Governors in several more states are preparing plans for early next year or have already asked legislators to approve similar programs in 2009 to help create jobs and spur the economy. The efforts come as most states face shrinking tax revenues, forcing them to cut their budgets or find other sources of income.

In recent economic downturns, states generally have stayed away from offering their own economic stimulus packages, either relying on a federal stimulus plan or just sticking it out.

But the breadth and depth of this downturn -- starting last year with regional housing slumps and budget shortfalls, followed this fall by the banking crisis, credit crunch and plunge in consumer confidence -- have made desperate state officials take extraordinary measures.

"There was just a different type of shock in the economy" compared to the downturns following the dot-com bubble's burst in 2000 and the Sept. 11 attacks, said Nick Samuels, a vice president with Moody's Investors Service in New York, who tracks state financial issues. "The states are recognizing that it's going to take more effort."

California's Republican Gov. Arnold Schwarzenegger is among the state leaders who is proposing a stimulus plan that would speed up capital projects to create jobs and spending.

"If we adopt the strong economic stimulus measure that I have proposed, which is the most important ingredient in this whole package, we can offset a lot of the pain that comes with spending reductions and new taxes," Schwarzenegger said last week in urging lawmakers to accelerate $1.8 billion in hospital, road and water projects. "But we must act fast."

North Carolina Democratic Gov. Mike Easley plans to speed up the bureaucratic process to get more than two dozen state building projects valued at more than $700 million started as soon as possible.

The projects, which would be paid for with bonds with low interest rates, could generate 26,000 new jobs and pump millions of dollars into the economy, Easley said.

The "Accelerate Florida" program unveiled in August by GOP Gov. Charlie Crist already has trimmed by one to five months the start times for 179 transportation projects valued at $1.4 billion and projected to employ 39,000 people.

"So far, so good, especially in transportation. I think it's been very good," Crist said in a recent interview.

Borrowing can only go so far for states. The total tax-supported debt for all 50 states has grown from $198 billion in 1998 to $398 billion in 2007. High debt levels can risk a state's bond rating and threaten its long-term fiscal health.

Some state and local governments had postponed issuing new bond debt until credit markets stabilize because they worried they wouldn't find investors to buy the bonds. Now, there's a growing list of states that want to issue bonds to pay for their projects, said Maria Matesanz, another Moody's analyst.

Some experts warn that states might not get the bang they expect for their bucks. For example, Florida has no income tax so it can't collect more as new jobs are created.

"When you do these kind of expedited capital projects like this, I don't think it always turns out to be the most cost-effective approach," said John Hall, executive director of the nonpartisan Florida Center for Fiscal and Economic Policy.

Other states have taken different approaches.

Illinois will shift up to $1 billion in state investments from lower-yielding securities to banks in the state that don't qualify for federal bailout money. State officials say the shift should provide higher returns for the state while helping banks.

"In terms of dealing with the credit crunch, I think it's a very useful strategy," said Sujit CanagaRetna, a senior fiscal analyst with the Council of State Governments in Atlanta.

New Jersey Gov. Jon Corzine, a Democrat, signed into law Tuesday a $120 million economic stimulus bill that gives businesses a $3,000 grant for every new employee they hire and keep for at least a year.

Voters in Ohio approved a $400 million bond package last month to preserve farmland and clean up polluted sites -- part of a $1.6 billion plan that Democratic Gov. Ted Strickland and the Legislature created in the spring to aid emerging industries like aerospace and biotechnology.

Vermont Gov. Jim Douglas, a Republican, wants to eliminate taxes on companies that manufacture in the state products designed to attack "major policy challenges," such as renewable energy, state commerce secretary Kevin Dorn said.

But with states burning through their reserves and facing another $97 billion in shortfalls over the next 18 to 24 months, according to the National Conference of State Legislatures, state leaders say cash from Washington is essential.

"We're constrained, as we properly should be, by the balanced budgeting required in our constitution, so states are constrained in what they can do in terms of a stimulus," said North Carolina House Speaker Joe Hackney, who is also the conference president. "That's why it's important that the federal government do it."

The nation's governors and legislative leaders want Congress to pass a stimulus plan that would include at least $40 billion for low-income health care and up to $136 billion for infrastructure projects. President-elect Barack Obama has said he would like to see an approved stimulus plan by the time he takes office.

"There isn't really a lot of latitude for a state to engage in a stimulus package that was not provided by farsighted or lucky provisions that kind of came along before," said Dennis Sullivan, a researcher in urban and regional economics at Miami University in Ohio. "That's why they're imploring Washington to do something."

[Associated Press; By GARY D. ROBERTSON]

Associated Press writers Angela Della Santi in Trenton N.J., Brendan Farrington in Tallahassee, Fla., and David Gram in Montpelier, Vt., contributed to this report.

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