Point of View

What our recovery requires

July 29, 2010 

Not since the Great Depression has talk of 10 percent unemployment been hailed as a sign of renewed economic life in North Carolina.

Yet the new state jobless figures marking a fourth-straight month of lower unemployment at 10 percent, the lowest in 18 months, warrant an attitude of cautious optimism about the future of the state's economy.

At this critical period for our economy, maintaining vital public investments is more important than ever. To create jobs and grow the economy, states like North Carolina need more federal aid - a cost-effective way to provide fuel for our economic engine.

At the beginning of the economic crisis, some of the country's most respected economic forecasters predicted a possible second Great Depression, with years of double-digit unemployment and depressed incomes even for those fortunate enough to keep their jobs. Evidence now shows that without the American Recovery and Reinvestment Act of 2009, this doomsday scenario predicted by many economists might very well have become reality.

Without last year's Recovery Act, millions more people would have lost their jobs. Estimates from the President's Council of Economic Advisers show that the Recovery Act saved or created about 3 million jobs nationally, including 90,000 jobs in North Carolina, about a third of all jobs lost in the state since the start of the recession.

Among the most effective parts of the Recovery Act for preserving private- and public-sector jobs was the nearly $140 billion in federal aid to states. The recession left North Carolina with only three-quarters of the revenues necessary to maintain key state services such as public schools, community colleges, universities, health care and public safety.

The more than $2 billion in aid from the federal government was critical for keeping our teachers, police officers, fire fighters and health care workers on the job in our communities; it has also kept the state from cutting millions of dollars in contracts with hard-hit private companies that may otherwise have laid off thousands of additional workers.

Federal aid in support of state revenues has been a vital part of putting North Carolina back on a path to job growth, but these gains are still fragile and inadequate to provide enough jobs for the almost half-million unemployed residents of the state. The number of North Carolinians on the job is still more than 240,000 - lower than before the start of the recession in spite of the state adding 60,000 jobs since the end of last year. Until private-sector job growth is on firmer footing, state spending on key public services will continue to play a pivotal role in the recovery of the state's economy.

With so many of North Carolina's workforce unable to find jobs, the state's own revenues will continue to fall far short of the level necessary to help sustain job growth.

Congress took a step in the right direction Tuesday by extending benefits to jobless workers. Unfortunately, Congress also chose to ignore one common-sense, cost-effective way to stimulate state economies: state fiscal relief.

Federal aid has been essential to fill the gap between available revenues and the state's needs, but Congress did not act to extend vital aid in the form of enhanced Federal Medical Assistance Percentages. As a result, federal aid to North Carolina will drop by over $500 million at the end of this year.

Extending Federal Medical Assistance would have saved or create tens of thousands of jobs in North Carolina, helping avert the possibility of a double-dip recession that could jeopardize the job gains that are so crucial for the state's long-term recovery.

In addition to spurring much-needed job growth now, federal aid enables North Carolina to continue making investments necessary to ensure that the state's workforce is prepared to take on the new jobs that will replace those lost in the recession. If the job-creating force of FMAP is not available, Congress must find new ways to supply states with much-needed fiscal relief.

Creating jobs is undoubtedly our highest national priority, and extending federal aid to states is one of the most cost-effective ways for Congress to support getting people back to work.

Edwin McLenaghan is a policy analyst at the N.C. Budget & Tax Center.

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