Will the stimulus help the states? Your mileage may vary

With all the hoopla surrounding President Barack Obama’s visit to Denver today, we’re still left with the paltry-by-stimulus-bill-standards $64,000 question: what will the $787 billion cash infusion actually do?

Stateline.org asks three economists how much of a difference will the economic stimulus package make to states?

Here are some highlights:

Energy-producing states suffering budget deficits are getting more than expected

The bottom line in terms of this aggregate impact is that it already is having a positive impact in postponing cuts and tax increases. Whether the allocation on a state-by-state basis has been according to needs is more difficult to determine. We know that about one-third of the Medicaid formula was based on economic distress, so states like Arizona, Florida, California, Michigan and Rhode Island would be receiving a larger share of funds. That said, I suspect that to the extent there is a misallocation, it is primarily to states that previously had significant budget surpluses due to their dependence on energy production. Most of these are small states. It is also true that states’ needs will change significantly over the next couple of years as some industries recover faster than others. Given the political process, however, the allocation does not look bad.

—Raymond C. Scheppach is an economist and executive director of the National Governors Association.

Wither the treasury bond market?

The decision making on the part of the states will be the determining factor. In some cases, the transfer from the federal government to state governments will simply substitute borrowing in the Treasuries market for borrowing in the muni markets. In other cases, states will use the funds to postpone cutting programs. In the latter situation the transfers may just serve to push the budget cutting out to the 2009/2010 fiscal year and only have a temporary impact. Thus it is difficult to quantify the efficacy of these transfers.

—Jerry Nickelsburg is a senior economist at UCLA Anderson Forecast, which provides forecasts on the California economy.

Stimulus as economic birdshot?

The $40 billion of general subsidy should prevent some cuts, but one problem is that the money is being sent out generally and not targeted to the states with the big problems.

—David Wyss is chief economist, Standard & Poor’s, New York.

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Wendy Norris

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