i Stimulus bill is lifeline for Maine's economy
Morning Sentinel
Stimulus bill is lifeline for Maine's economy
Kurt Wise (kwise@mecep.org) Kennebec Journal & Morning Sentinel 03/02/2009

Now that President Obama's stimulus package has been enacted, Americans and Mainers can breathe a small sigh of relief that help is finally on the way. All of us here in Maine can be especially thankful that our federal delegation -- and particularly our two senators -- worked hard to pass this crucial piece of legislation. The country has no time left to lose.

America is in the midst of the worst economic downturn since the Great Depression. As millions of people lose their jobs and thousands upon thousands lose their homes, consumer spending has collapsed nationwide.

And businesses are faring no better. Even were they able to pry loans out of under-capitalized banks, businesses are not seeking to boost capital investments or expand output. Instead, they are frantically looking to cut costs and trim production.

With consumers and businesses withdrawing to the sidelines, demand has shriveled. As was true in the 1930s, the only way to return to economic health is to boost national demand, and the only entity willing and able to generate that demand now is government.

The stimulus bill, officially called the American Recovery and Reinvestment Act (ARRA), is an essential first step toward that end.

The non-partisan Congressional Budget Office estimates that, absent federal action, the U.S. economy will shave its economic output by something approaching $3 trillion dollars over the next three years. To combat this decline, the ARRA aims to pump $787 billion back into the national economy. As this amount offsets only about 25 percent of the estimated decline, additional stimulus almost certainly will be needed. The ARRA will slow our descent and limit the damage, but it will not restore the economy back to full health any time soon.

If Maine's economy falters in proportion to the estimated national decline, we will see something like $3 billion in lost activity annually in each of the next three years and possibly beyond. Lost economic activity translates into lost jobs. During 2008, the ranks of the unemployed in Maine grew by 15,000 people, with the unemployment rate jumping from 4.9 percent to 7 percent.

More pain is in store: Estimates are that Maine will not reach bottom much before 2011, and without federal help we will shed another 15,000 jobs or more along the way. Climbing back to our previous employment highs will take years beyond that, quite likely out into 2014, 2015 or beyond.

Meanwhile, Gov. John Baldacci and our state legislators are faced with an $840 million dollar shortfall in the state's two-year operating budget -- if current revenue projections don't worsen.

Drastic cuts in state spending on jobs, programs and services will serve only to deepen our state's economic woes and lengthen the period to full recovery.

Fortunately, President Obama -- with the help of Maine's senators and representatives -- has taken a crucial first step with the stimulus bill, providing a dose of the medicine our national and state economies desperately need.

Maine stands to receive roughly $650 million toward operating expenses over the next two years. Hundreds of millions of additional federal dollars will be invested in Maine as a result of the stimulus. These dollars will support improvements to transportation, education, sanitation, infrastructure, energy efficiency programs and extended unemployment benefits.

In total, some $1.1 billion in federal stimulus will arrive from Washington, helping to balance our state budget while putting thousands of Mainers back to work on projects that will increase the long-term productivity and competitiveness of the Maine economy.

Many ask how America can afford to pay for all this. That's a very real concern.

Having been handed a budget deficit of $1.3 trillion by the outgoing administration -- along with a financial sector on life-support and the national economy in a tailspin -- President Obama has been forced to make some very hard choices.

Elected to reverse the policies of deregulation and top-earner tax cuts that led us to this point, the president also has pledged to halve the deficit he inherited by the end of his first term.

The hard fact, however, is that America cannot succeed in the long-term without addressing the current crisis. And that will require more, not less, stimulus.

The current stimulus bill represents a timely down payment on our national recovery, and it throws a lifeline to states like Maine. Wisdom would suggest that critics on both sides of the aisle quit posturing about the exact cost and composition of this safety rope and instead look for additional ways to help.

Kurt Wise (kwise@mecep.org) is state fiscal policy analyst at the Maine Center for Economic Policy.

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