Bennet gets advice in the thick of stimulus compromise

The smart folks over at the Bell Policy Center have some suggestions for nascent U.S. Sen. Michael Bennet who’s wrangling a compromise within the $900 billion federal stimulus bill a mere three week after his swearing-in.

Bell president Wade Buchanan and Policy director Rich Jones lay out a strategy in a letter sent today to Bennet that centers on a “do no harm” philosophy:

February 5, 2009

The Honorable Michael F. Bennet
702 Hart Senate Office Building
Washington, D.C. 20510

Dear Senator Bennet:

We welcome and respect your leadership as one of the senators negotiating possible changes in the economic stimulus package. We want to share our perspectives on several aspects of the package and their impact on promoting opportunity for all Coloradans.

We understand proposals to reduce or eliminate funding for various programs that help support low-income individuals and families are on the table. Specifically, we understand there are negotiations over efforts to reduce funding for the Federal Medical Assistance Percentage (FMAP), Title I Education grants, Child Care and Pell grants. We want to share with you our desire that funding for these remain in the stimulus package.

We presented a series of budget principles for Colorado policy makers to consider when making the more than $1 billion in cuts needed to balance the state budget. The following principles are particularly relevant in considering what should be included in the federal stimulus package:

· Do no harm to the most vulnerable Coloradans.
· Take the long view and prioritize funding that promotes long-term opportunity.
· Use the federal stimulus money strategically by making investments that stimulate the economy in the short term and support public structures that underpin our long-term economic growth.
· Be cautious about tax credits or cuts to promote economic development because research suggests many of these are not effective.

One of the key provisions in the stimulus package is the temporary increase in the Federal Medical Assistance Percentage (FMAP). It is anticipated that Colorado would receive about $800 million in funding over the next two fiscal years under this provision. That means we can continue to protect the most vulnerable Coloradans who need medical coverage while reducing the amount of state General Funds needed to match the federal funds. This would help Colorado’s budget and free up General Funds for other purposes, such as maintaining funding for preschool slots or need-based aid for higher education.

We understand that Colorado would receive as much as $126 million in Title I education funds. These would help fund programs in high-poverty areas such as Head Start. We do not have to tell you how these programs not only help vulnerable students today but pay off over the long term in better academic achievement that closes achievement gaps and lowers drop out rates.

Likewise, increased funding for Pell grants makes college more affordable to students and helps offset what are sure to be increased tuitions at Colorado colleges and universities. Access to higher education is a key to increasing opportunity for low-income students in the short term and promoting economic growth in Colorado over the long term.

There is $2 billion in funding for child care in the proposal. In Colorado, depending on the county, many parents who qualify for child-care assistance do not receive it. As many low-income workers have their hours cut or pay reduced, they cannot afford their child care. In many cases, lack of child care hinders parents’ ability to work or attend school.

There are a number of proposals to create new or expand existing tax credits. Research indicates that general business tax cuts would be less effective in preserving or creating jobs than cuts aimed at low- to middle-income taxpayers.

Businesses are not likely to spend the money from the tax cuts now but instead will wait until demand picks up. On the other hand, lower-income taxpayers are likely to spend the tax cuts immediately, resulting in increased demand and greater economic activity. Mark Zandi, lead economist at Moody’s, calculated that every dollar in payroll tax cuts would generate $1.29 in GDP growth and refundable lump-sum tax credits would generate $1.26 in GDP growth. However, every dollar in corporate tax cuts would only generate $.30 in GDP growth.

We understand there are multiple factors that must be considered in shaping the overall economic stimulus package. We appreciate your leadership on this issue and urge you to act in the best interest of all Coloradans with a particular eye toward those hurt the most by the downturn.

Please call or email me with any questions or if we can provide additional information.


Wade Buchanan
The Bell Policy Center


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