Connecticut and most other states are tightening budgets just as President-elect Barack Obama is gauging how much new federal spending is needed to stimulate the economy.
Can the states avoid working at cross-purposes with Washington?
Gov. M. Jodi Rell said the nation’s governors were aware of conflicting pressures Tuesday as they met with Obama and his transition team in Philadelphia.
“That point came up several times during the conversation,” Rell said, adding that the governors indicated, “You know, we can’t print money, and we can’t just rack up deficits.”
While nearly every state is barred from running deficits, the federal government is likely to borrow heavily and adopt a second stimulus package at a cost of at least $500 billion — with some economists calling for far more.
Obama pledged action on the economy — and cooperation with the governors, most of whom face crushing deficits.
“As president, I will not simply ask our nation’s governors to help implement our economic recovery plan,” Obama said. “I will ask you to help design that plan. Because, if we’re listening to our governors, we’ll not only be doing what’s right for our states, we’ll be doing what’s right for our country.”
In a telephone interview after Obama’s private, two-hour meeting with the National Governors Association in historic Congress Hall, Rell said that financially strapped states can complement a federal stimulus plan on a minor scale.
Even as Connecticut is expected to slash general-fund spending to close an estimated $6 billion budget gap over the next two years, the state can go ahead with bonding to pay for clean-water projects and other infrastructure improvements.
“It won’t be huge, but it will be very much appreciated, I’m sure, by the municipalities that are anxiously awaiting these funds,” Rell said. “So we can do our part, but obviously not to the same depth, at all.”
Don Klepper-Smith, chairman of the governor’s economic advisory board, said state infrastructure spending would not be insignificant.
“I think we’re in an economy where every dollar counts. I think every level of government has a role to play in helping us through a recession,” he said.
Rell has yet to explain how she will balance the next biennial budget, other than promising a return to the core functions of government. She has pledged to try to avoid layoffs, cuts in municipal aid and tax increases, which seems impossible to many at the Capitol.
A coalition of state employee bargaining units whose contracts are expiring hopes that Rell is equally committed to preserving state services.
“That’s going to require thinking creatively — and thinking big,” said Dan Livingston, the chief negotiator for the coalition. “It’s also going to take the courage to stand up for the people who are counting on us.”
Rell declined to comment in detail on preparations for her budget, which she will present to the General Assembly in February. By then, the governors hope, a new stimulus package will be signed into law.
Rell said the governors were told that Obama’s meeting may have been the first time an incoming administration engaged the governors in a policy discussion.
The meeting set a bipartisan tone for what the governors hope will be extensive talks with the new administration over economic policy, Rell said.
“There was a lot of give and take on the fact we’re all in this together. There are no easy answers,” Rell said. “And the states are simply not going to sit there and say, ‘Give me the money to cover my budget deficit this year.'”
But the governors want to see a quick infusion of federal spending on infrastructure and Medicaid, Rell said.
“That kind of stimulus package, if it is structured right, would be very helpful to states,” Rell said during a telephone interview.
Rell spoke during her ride back from Philadelphia. She economized on the overnight trip, staying with relatives and traveling by car.
In Connecticut, Rell must erase a current-year deficit of more than $300 million and also close a $6 billion shortfall in the new two-year budget.
Economists who recently briefed Rell on the recession said the state is facing not only a cyclical downturn, but also structural changes in the region’s economy.
Klepper-Smith said the state can expect to lose 60,000 to 80,000 jobs, many of them from the financial services sector important in Hartford and Fairfield counties.
Edward J. Deak, a Fairfield University economics professor who also has advised Rell, said the structural changes mean some of those losses will be permanent.
“Even as we pull ourselves out of the cyclical recession, we’re going to have to pay attention to the fact that the financial system that we’ve known and loved is gone, it’s not there anymore,” Deak said.
Deak said he hopes the Obama administration and Congress adopt a $1 trillion stimulus package to be spent over four years.
A package of that scope will “literally grab the imagination of the American public, the business community and global community and signal that, without doubt, we are not going to let the economy fail,” he said.
A wire story was included in this report.