Ohio Needs to Plan Now to Weather the Next Recession

Akron Beacon Journal - September 1, 2003

by Amy Hanauer, in The Akron Beacon Journal 

A number of government sources show Ohio is suffering more than the country as a whole in the wake of the 2001 recession, and more than the state suffered after the recession of the 1990s. We’ve hemorrhaged 3.3 percent of our jobs, more than three times as much as in the last recession. With 185,000 positions vanished, we’ve lost more than all other states, except California and New York.

Most of the losses have been in the high-paying manufacturing sector, and, unlike other states, gains in other sectors have done little to fill the gap. Union membership keeps dropping, unemployment has risen, and more workers are exhausting state unemployment benefits before finding new jobs. About the only bright spot in the economic news is that wages haven’t dropped, although family income has.

So what’s a Rust Belt state to do?

Fortunately, there are some good answers. In the heady 1990s, Ohio cut taxes, slashed unemployment fees paid by employers, and failed to build a sufficient rainy day fund or invest enough in educational equity, higher education and worker training. When the recession hit and jobs evaporated, needs climbed. Yet, we were caught with few savings and big expenses. That is not good emergency preparedness.

Since 2001, we’ve taken steps that can deepen a recession. We cut some spending, which makes the economy contract. We raised regressive taxes. While tax revenue was sorely needed, progressive taxation does less economic damage. We laid off state workers, leaving people without jobs and with less money to spend in their communities.

Ohio needs to light candles to get through this economic power outage and invest in batteries, flashlights and other essentials for the next one. Here are five ways to start:

• Improve the state’s long-term fiscal policy. Ohio should restore its shrinking corporate franchise tax, increase the rate paid on the top income tax bracket and, as Gov. Bob Taft has proposed, extend the sales tax to cover services. The additional funds can support priorities and, as the economy recovers, build a rainy day fund, providing resources for stimulus in the next blackout.

• Stimulate the economy. A recession and its wake is a great time to invest in capital spending projects, for which the state is permitted to borrow money. Interest rates are low, borrowing is cheap, and construction projects can get people working and provide consumers with cash to be respent in their communities.

Ohio is doing some of this already with its school facilities renovations. We can also expand brownfield remediation, construct energy-efficient housing and ensure sufficient private investment in the electrical power grid.

• Maintain government spending. Like states around the nation we sliced parts of our budget when tax revenues began dropping. But cutting spending has a “pro-cyclical effect” — depressing the economy when it needs stimulus and potentially worsening the recession. Cutting public spending means laying off workers and shrinking services that are needed more than ever in the downturn.

Of course, if the rainy day fund is raided during good times, higher taxes or reduced spending are required when the economy loses speed. Neither is desirable at those times, but cutting government spending curtails the economy much more than a progressive tax increase.

• Expand family supports. Lost jobs, lowered incomes, unpayable mortgages and too many debts all become more common in a recession and its wake. Providing support for those hit by these hardships helps families weather the hard times and keeps money flowing to stimulate local economies.

There are proven examples and new innovations to help people survive slumps. Here are four Ohio should embrace:

— Expand unemployment insurance. Unemployment insurance is the first line of defense in a recession, providing income support to laid-off workers and stabilizing the economy. A recent study commissioned by the Department of Labor concluded that such a remedy slows job loss and bolsters the economy in recessions.

— Promote existing federal assistance. We should ensure that those eligible file for the Earned Income Tax Credit, claim food stamps, use Medicaid and tap into other federal sources of assistance.

— Innovate to prevent recession-related catastrophes. Foreclosure prevention funds in Pennsylvania allow the government to help strapped borrowers maintain mortgage payments. Massachusetts has helped maintain health insurance for laid-off workers. Such innovations can avert family disasters and keep communities solvent.

— Invest in human capital. A recession is a good time to return to school or training, ride out the job bust and be better prepared for future openings. Ohio should better fund higher education and reform its displaced worker training, putting the state in position to recover from the downturn.

• Demand federal fiscal relief. While national policy should have been focused on assisting those who had lost their jobs or seen incomes drop, it was instead centered on tax cuts for the wealthy. Such breaks do little to stimulate the economy and nothing to relieve need. Now is a time when federal resources should be used to get the power back on around the nation.

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