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Thursday, October 15, 2009

Public Sector Spending Important to Economy

By Vicki Pozzebon
Executive Director, Santa Fe Alliance
      Beverlee McClure, president and CEO of the Association of Commerce and Industry, makes the case in her Sunday op-ed that because the “public sector” is somehow to blame for the current state budget crisis, it is up to the public sector to fix it. What she and some other private sector folks forget is the very real, very important tie between public sector spending and private sector well-being.
       First let's be clear about what we mean by the “public sector.” We mean teachers, firefighters, police officers, road maintenance workers, emergency room doctors and nurses, and many other public servants. They teach our kids, care for our elderly, keep us safe and keep our roads usable and clean. They are mothers, fathers, sons, daughters, aunts, uncles and neighbors. The taxes we pay are for the services these public servants provide.
       Conventional wisdom often suggests that the private sector pulls the economy up while public sector spending drags it down. But that is simply not the case. In fact, public sector spending is just as important to the health of the economy as is the private sector. And in a recession, it's the public sector that picks up the slack when businesses falter.
       Think about what New Mexico does with the money it takes in from tax revenues. It spends that money — rapidly and close to home. The money goes into the very same economy as does private sector spending. It happens directly when the state purchases goods (like raw building materials, paper, computers, etc.) and services (contracting construction crews, school bus drivers, etc.). It also happens indirectly, through the paychecks of public servants (firefighters, teachers, police officers, etc.). These paychecks go to pay rent or mortgage, and buy groceries, food, gas, car insurance, and all of the same things that people with private sector jobs purchase. Take away those public service jobs and you take away that private spending. That's a lose-lose situation.
       Medicaid is a good case in point of a win-win situation. Just 3 percent of what the state spends on this health care program goes for administration. The rest — 97 percent, or millions of state and federal dollars — pays the salaries of private-sector doctors, nurses and their many technicians and staff members, helps maintain private-sector hospitals, doctor's offices and nursing homes, and goes to pharmacies, pharmacists, and their support staff and suppliers. Medicaid spending alone supports 52,000 jobs — the vast majority of which are in the private sector.
       The other direct beneficiaries of Medicaid — the children of low-income families, the low-income elderly and the disabled — receive health services they would not otherwise be able to afford. This frees up their limited incomes for other necessities like purchasing groceries and paying the electricity bill. It's a win-win because, when it comes to the state's economy, we're all in this together.
       Unfortunately, when it comes to making sacrifices, we're not all in this together. When times were good, we cut state personal income taxes — but not for everyone. The tax cuts gave the biggest benefit for those that needed it the least. The 40 percent of taxpayers on the low end of the pay scale received not a dime from these cuts — even though these folks spend their entire paycheck each and every month just to get by. A New Mexican earning the median state income (between $30,000 and $45,000) got back a whopping 38 bucks a year. There's an extra tank of gas for you. Those at the highest end of the income scale got back more than $13,000 a year. When you make almost $300,000 a year, do you really need that $13,000? Will you even spend it, or is it likely to go into your savings account where it will do precious little for the local economy?
       Likewise, profitable multi-state corporations are not required to pay income tax on the profits they make in New Mexico. Our tax code allows them to shelter that profit in another state — one that does not collect corporate income tax. New Mexico-owned corporations don't have that option. They have to pay taxes on their profits to maintain the public structures — street lights, police and fire protection, etc. — that allow the out-of-state guys to do business here, too.
       McClure suggests that it's time that the public sector tightened its belt. But as the public sector tightens up spending, the thousands of local businesses that provide services for and to the state and do private business with state employees will feel the squeeze as well.
       There's no one answer to a crisis of this magnitude. Most other states have opted for a balanced approach that includes raising revenues. A balanced approach recognizes the important role that public sector spending plays in stimulating the economy and it prevents a bad situation from growing even worse.
       Vicki Pozzebon is the executive director of the Santa Fe Alliance, a nonprofit organization of more than 500 locally owned independent businesses and nonprofit members working together to build a local living economy.
       

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