The budget scene in states around the country is unsettling.
In Wisconsin it looks more like civil war than a budget debate.
In California it looks like a bitter stalemate between the Democratic governor and the Republican minority in the legislature, with paralysis and posturing but not much progress.
Illinois has its back against the wall.
Surprisingly, New York State, which is historically associated with big spending and liberal social mandates, has put in place on time a balanced budget with large cuts in education and health. And it was proposed and forced through by a Democratic governor.
State and local governments across the country have started to cut back services, and there will have to be more of that. But man cannot live by cuts alone.
One of the reasons to strive for a sound budget and the solid credit ratings that go with it is to be able to invest soundly for the future. And building for the future means investing in infrastructure.
That boring word “infrastructure” stands for the life-support systems that allow our economy and interdependent society to work — roads and bridges, water and sewage systems, transit and electrical distribution. Our road and rail systems have been rusting out, wearing out, and rotting out for lack of reinvestment.
What we need from the nation’s governors is for them to design and sell in their states capital programs, sized to their capacity for debt, that can build regional and state economies with more jobs, boost private sector investment, and give citizens life-support systems that are efficient, fast, modern and not too costly.
What we need from the federal government is recognition of the raw reality that state capacity to invest will be crippled unless the feds develop a framework for states in deep financial trouble to go through a financial workout. I didn’t say “bailout,” I said “workout” — getting yourself out of trouble the old-fashioned way. And we need the federal government to realize that budget-balancing and reining in skyrocketing debt imply a shift away from the unsustainable level of consumer spending that has driven the economy for most of the past decade.
What should we shift to? Investment. And for that we need the federal, state, and local governments working together. The positive economic effect of the federal stimulus program was more than offset, some studies have shown, by the reductions in state and local spending. The portions of national GDP that are controlled by the feds on one hand and state and local governments on the other are huge. Guiding them in coordination is something no recent national administration has been able to achieve.
What kinds of things should we invest in?
- Getting our roads and bridges into good shape. That will require full faith and credit obligations of the states themselves. And it will require flexibility in how the federal government allocates transportation funds, since the transportation departments of many states, in the words of one expert who works with them, are “in the functional equivalent of bankruptcy.”
- Investing in efficient energy, starting with state or state-supported facilities, from courthouses and colleges to hospitals and schools. This requires providing the electric utilities with incentives to reduce rather than increase energy sales volume (this is called “decoupling” and was pioneered in California), thus converting them from drivers of electricity consumption to marketers of conservation.
- We need to invest in upgrading water supply and distribution systems. Parts of the U.S. are already experiencing water shortages at the same time that they have wasteful supply and distribution systems, and other regions will feel the pressure in the future.
- But the boldest project we should tackle is building a “smart” electrical grid, which “leaks” less electricity than the old-fashioned grid and saves energy and money by continuously adjusting flows to and from each home or business. Building a smart grid would sharply reduce energy consumption, thus reducing the cost of doing business; it would give us a huge competitive advantage vs. other countries; and it would also reduce the vulnerability of our economy and life-support systems to terrorism — a reality we have to be tough-minded enough to take into account. If it were coupled with a system of neighborhood conservation corporations to install and service the new equipment in homes and offices, building the smart grid could provide two decades worth of jobs that could never be outsourced overseas. That’s a trifecta: a competitive edge for our businesses, investment that will reduce energy consumption and thus make energy bills cheaper than they would otherwise be, and neighborhood-level jobs.
Can we do something this bold and complicated?
This is the country that converted its manufacturing capacity overnight in World War II to produce at short notice the tanks and airplanes needed to defeat the Axis war powers.
This is the country that built a massive national interstate road system, invented and deployed the Internet, put a man in space, and launched the digital revolution.
First we have to realize what we are fighting for now. We are fighting to avoid economic disaster, and we are fighting for a sound, competitive, sustainable future for our children.
The task before us is to stop the soaring debt at the federal level and rein in the deficit, including the use of transition taxes if necessary to do that. We need a federal workout framework for the states that are on the ropes financially. We need to invest more in our own future and potential as we buy fewer cheap, immediate-gratification consumer goods made overseas.
And we need to start the serious discussion about how fast and on what terms to do all this now.
Distributed by Citiwire.net.