The American Jobs Act, Long on State Funding, Short on Political Support

The President fired a shot across the bow of Congress last night with his $450 billion proposal to address the jobs crisis.  In a reprise of the Recovery Act of 2009 (the “stimulus”), the majority of new spending in the proposal would flow through state and local government with over $110 billion devoted to infrastructure and education alone.  However, state budget planners need not revise their mid-year predictions just yet as the bill will face a hurricane-force headwind as soon as it hits the House of Representatives next week. 

On Wednesday, the White House played down the prospect of substantial state and local government aid in a meeting with senior representatives of the “Big Seven”, the coalition of major state and local associations including CSG.   Senior officials seemed particularly skeptical about the prospect of providing flexible state funding for education, as states had not fully drawn down the $16 billion in funding they received from the Education Jobs Fund passed in 2010.    

However, the proposal unveiled last night provides a scale and scope of state aid rivaled only by the stimulus.  While the details of the bill remain fuzzy, the key elements for state governments revolve around three program areas:

  1. $50 billion for highways, transit, rail, and aviation infrastructure;
  2. $30-35 billion in budget support for state and local governments to prevent layoffs and allow teachers, law enforcement officers, and fire fighters to be rehired; and
  3. Up to $25 billion to refurbish and upgrade schools. 

The proposal also contains $15 billion for refurbishing vacant homes (potentially through HUD grants to state and local governments), $5 billion for community college improvements that would flow through states, and $5 billion for a “Pathways Back to Work Fund” to support job training and apprenticeship programs that could be administered at the state level.   

  Download the Table: "State Support in the American Jobs Act"

Over half of the price tag for the bill comes from its tax provisions.  Payroll tax cuts both for employers and employees would cost $175 billion alone, with additional incentives for businesses to make new investments and hire new workers (particularly returning vets).   The bill would cut in half the taxes paid by businesses on their first $5 million in payroll and expand the payroll tax cut for workers passed last year to cut workers payroll taxes in half in 2012.  The White House estimates that the typical American family would save $1,500 under the plan. 

While House GOP leadership have been muted in their criticism of the bill so far, with both Speaker Boehner and Majority Leader Cantor emphasizing that there are aspects of the plan they could support, but there is no clear pathway forward for a bill so closely aligned with the politically toxic stimulus.  On the surface, the proposal would seem more about previewing the President’s platform for the 2012 election rather than offering a realistic legislative proposal, but there are two factors that give the package at least a kernel of potential for gaining traction.   First, House leaders can’t ignore that President’s argument that Americans can’t wait 14 months for the next election for action on jobs.   Second, the newly launched Super Committee presents at least a hypothetical vehicle for expedited action.

The President’s speech came on the same day that the Super Committee held its first session.  The timing was fortuitous as the President plans to pay for his proposal by asking the committee to provide additional long-term savings to cover its short-term costs.  While most pundits predict that it will be hard enough for the 12-member committee to reach a compromise for $1.2-$1.5 trillion in budget savings, some experts have also noted that the committee has a sweeping mandate and an almost unprecedented ability to provide expedited consideration of its proposals that could open the door for the committee to make sweeping policy proposals to address the jobs crisis.   As long as the committee’s overall proposal includes at least $1.2 trillion in net new savings it is free to include short-term stimulus in its proposal, as the President has suggested, or even to tackle broad tax reform as some House members have suggested.  If seven members of the committee could agree to any such proposal it will move to the floor in both chambers without amendment and can be passed into law by a simple majority in each.

For states, the main result of the speech last night is to place even more emphasis on the Super Committee.  State leaders already knew that the committee's deliberations could echo out in state budgets for at least a decade to come.  However, after last night, they know that the prospects for unexpected short-term relief may also ride on these twelve super-empowered individuals.