Nov/Dec 2009

State News: August 2009



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States Move Forward with Stimulus Packages

By Mikel Chavers
States aren’t waiting on a rescue or bailout from the federal government—no—some states are implementing their own stimulus packages mostly focusing on infrastructure funding. State officials view it as a way to quickly stimulate local economies and get shovels in the dirt and people on the job.
In fact, plans for Washington’s proposed stimulus package are due out this month. States such as Florida, Ohio and Vermont have already implemented state stimulus packages to jumpstart their economies.
And instead of raising taxes, states are taking on more debt in the form of bonds. For the most part in these stimulus packages, states are relying on new bonds to fund much-needed infrastructure projects and other projects.
“Basically what has happened is in the last eight or nine years, states have relied on raising money via bonds as a very typical strategy to generate funding that is needed for a range of different projects,” said Sujit CanagaRetna, senior fiscal analyst with The Council of State Governments’ Southern region, the Southern Legislative Conference. “And part of the reason for this is because raising taxes is so politically radioactive.”
Now with states facing a range of money problems because of the ongoing national recession, “you can’t cut spending anymore than you already have and you need these funds to embark on some very serious and very fundamental projects,” CanagaRetna said. “So how do you come up with the money? You go down the bond route.”
But not all states can simply bond their way out of trouble.
In 1998, state net tax-supported debt was $198 billion. It’s nearly doubled in nine years—in 2007, states owed nearly $400 billion in outstanding debt to bondholders, according to CanagaRetna.
“There are some states that are obviously in better shape in terms of their bond market scenarios compared to others. In other words, some states have a bigger per capita of bond indebtedness level,” he said.
For example, Massachusetts and New Jersey have very high levels of bond indebtedness per capita, CanagaRetna said.
But those states that can take on more bonds are using this as an opportunity to resuscitate their economies just in time.
Vermont, one of the states with a stimulus plan in action, has allowed more bonding in transportation to stimulate its economy. And, because Vermont has a Triple A bond rating, the state is able to borrow at lower interest rates, according to Vermont’s Commerce and Community Development Secretary Kevin Dorn.
“We are extremely cautious about debt in this state,” Dorn said. “It was believed by those who advised the state on bonding that we had some limited additional capacity to bond primarily because Gov. (Jim) Douglas has been buying down the debt over the last four to five years,” Dorn said. “So we had some capacity and the governor decided to invest that capacity.”
For more on state stimulus packages, check out “Stimulating Growth” in January issue of State News magazine, available at


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