Wednesday, Feb. 17, 2010

Fiscal Support for State Governments

Much of the stimulus money spent thus far has been sent directly to state governments to help them balance their budgets. Unlike the federal government, most states can't spend into a deficit. Without federal government support, many would have had to cut jobs and government services. The hope was that giving money to the states would result in keeping teachers, firefighters and police officers on the payrolls, and not government waste.

The evidence is that the state support has boosted employment. About half of the jobs that the government counts as created by the stimulus were state- or local-government-funded positions. Economists from both sides of the political spectrum see this as a win. "State budgets are very pro-cyclical," says Reinhart of the American Enterprise Institute. "To the extent the government was able to stop contraction in local government spending, we were better off."

Grade: A