Stimulus Trap

Posted Feb. 23, 2009, at 5:28 p.m.

With nearly $1 billion expected to come to Maine from the economic stimulus bill recently passed by Congress, the state’s financial picture suddenly looks a lot more rosy. This in no way, however, negates the need for cost-cutting measures and ongoing work to increase the efficiency of government at all levels.

Education is a prime example. Maine is expected to receive $193 million in what are called state stabilization funds. The language of the American Recovery and Reinvestment Act stipulates that nearly 82 percent of this money go toward education. Further, the law says the funds first must be used by the state to restore support for kindergarten through grade 12 and postsecondary education to either the 2008 or 2009 funding level, whichever is greater. The money for kindergarten through grade 12 is to be distributed through state’s funding formula.

As a result, Gov. John Baldacci has restored a $27.8 million cut that was included in the supplemental budget passed by lawmakers last month. The reduction in kindergarten through grade 12 funding was part of the $166 million that was trimmed from the current year budget. The gap between revenues and expenditures was largely a result of the national recession, which has lowered state revenues across the country.

Stabilization money also will be used to at least partially restore cuts to higher education as well.

The stimulus money is meant to avert layoffs and program cuts that could further weaken the U.S. economy while also harming students. This is the point of a short-term stimulus.

At the same time, however, it can lead to unrealistic expectations about the continuation of such funding, which is a one-time injection of money, not an ongoing funding increase.

“It’s important to recognize this is not a fix-all for the General Fund budget,” state Finance Commissioner Ryan Low warned lawmakers last week. The Legislature’s Appropriations Committee has been at work looking for ways to balance the state’s $6 billion budget for the next two years. Due to declining revenues, the state faces a shortfall of $838 million for the budget cycle beginning July 1.

“There’s a very high level of expectation these funds are going to solve all of our problems,” Commissioner Low said of the stimulus funds headed to Maine.

In the short run, some problems, such as the decrease in kindergarten through grade 12 funding, may be alleviated, but the ongoing problem of expenditures exceeding revenues can’t be solved by federal funding. So, despite a reprieve, educators must still look for ways to reduce costs. Using some of the stimulus money to make their buildings more energy-efficient or to streamline administration between districts or campuses will help accomplish this. Simply using the money to maintain the status quo will not.

The same will be true in other areas, such as health care and law enforcement, that also will receive stimulus funds.

The forthcoming stimulus funds are a welcome way to maintain employment at a time when the country and state need people to make and spend money. The money can’t solve the long-term problem of sustaining more services than government can afford.

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