NY Lt. Gov. Ravitch: Stimulus Funds Driving States Over a Cliff

An article in today's Wall Street Journal tells a grim tale of the unintended consequences of federal stimulus funds. According to Richard Ravitch, the Democratic...
by | January 8, 2010

An article in today's Wall Street Journal tells a grim tale of the unintended consequences of federal stimulus funds.

According to Richard Ravitch, the Democratic Lieutenant Governor of New York, the federal dollars were a double edged sword:

"The federal stimulus has provided significant budget relief to the states, but this relief is temporary and makes it harder for states to cut expenditures. In major areas such as transportation, education, and health care, stimulus funds come with strings attached....Because of these requirements, states, instead of cutting spending in transportation, education, and health care, have been forced to keep most of their expenditures at previous levels and use federal funds only as supplements."

The consequences for better, faster, cheaper government are significant. Instead of tackling the tough choices now and embarking on a variety of cost-saving innovations now, states had to maintain their unsustainable rate of spending.

As Ravitch notes, federal dollars didn't just delay these needed changes, they actually made things worse.

"The net result is this: The federal stimulus has led states to increase overall spending in these core areas, which in effect has only raised the height of the cliff from which state spending will fall if stimulus funds evaporate."

Many of the reforms that states need to consider are politically difficult. Change is hard. The pain of economic hardship is often the only spur that can prompt these needed changes. But the federal stimulus dollars dulled the painful signal of economic reality to the body politic, and as a result the patient continued its unhealthy lifestyle. In the end, the result is only greater pain. As Lt. Governor Ravitch notes, the future is not bright.

"New York and other states face draconian cuts in public services, higher taxes, or, more likely, a combination of both," writes Ravitch.

States that don't change direction now soon find themselves heading off a cliff--helped there by well-meaning but ultimately detrimental federal policies that mandate spending for which there is no revenue.

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