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Obama Asks for $50 Billion in Additional Stimulus for Local, State Aid

by David Dayen

In the clearest indication yet that the White House believes the economy needs more stimulus to keep the recovery going, President Barack Obama sent a letter to the Congressional leadership of both parties, begging that they add into upcoming bills measures to keep poor people on their health insurance and aid struggling state and local budgets.

President Barack Obama makes remarks in Washington June 11, 2010. In the clearest indication yet that the White House believes the economy needs more stimulus to keep the recovery going, President Barack Obama sent a letter to the Congressional leadership of both parties, begging that they add into upcoming bills measures to keep poor people on their health insurance and aid struggling state and local budgets.(REUTERS/Jim Young) In the long, four-page letter, Obama says that “we are at a critical juncture in our nation’s path to economic recovery,” and that more support must be given to the economy in upcoming bills before Congress. Specifically, Obama wants Congress to pass a $6-8 billion measure to extend the 65% subsidy for COBRA eligibles, so jobless Americans can keep the health insurance provided by their former employer. He wants $23 billion in FMAP funding to go to the states so they don’t have to cut back on their Medicaid rolls. Both of these measures were cut from the tax extenders/jobs package in the House, a concession to Blue Dogs nervous about short-term deficits.

In addition, Obama calls on Congressional leaders to include $25 billion for state education and public safety jobs for state and local governments in the war supplemental. The Senate passed that bill in late May without the state aid, and while House Appropriations Committee Chair David Obey has vowed to include it in his version of the bill, he has wavered in recent days, talking about cutting back the $25 billion to $10 billion. Finally, Obama touts the Home Star program of rebates for energy efficiency audits of commercial and residential buildings, and his $30 billion small business lending fund which he promoted in a speech this week. He does nod to some of his medium-term measures, like the budget freeze on discretionary spending, and the bank tax to pay for TARP losses, selling off federal property and expediting rescissions to the budget (a form of the line-item veto).

Here’s an excerpt from the letter, which should leave no doubt about the attitude in the White House, that the recovery is perilous without emergency measures:

I am concerned, however, that the lingering economic damage left by the financial crisis we inherited has left a mounting employment crisis at the state and local level that could set back the pace of our economic recovery. Because this recession has been deeper and more painful than any in 70 years, our state and local governments face a vicious cycle. The lost jobs and foreclosed homes caused by this financial crisis have led to a dramatic decline in revenues that has provoked major cutbacks in critical services at the very time our Nation’s families need them most. Already this year, we have lost 84,000 jobs in state and local governments, a loss that was cushioned by the substantial assistance provided in the Recovery Act. And while state and local governments have already taken difficult steps to balance their budgets, if additional action is not taken hundreds of thousands of jobs would be lost.

That’s about as clear as you can get. Obama only withholds the fact that the kind of assistance necessary to the crisis in state and local budgets was originally present in the Recovery Act, but Ben Nelson, Susan Collins and Arlen Specter deleted $100 billion from the final cost on a whim and to look moderate. Most of that money came from state and local governments, leaving those “moderates” directly responsible for that job loss.

Rather than lament this, the Administration at least recognizes the need for action. He notes that allowing hundreds of thousands more layoffs just adds more costs in automatic stabilizers like unemployment and job training, as well as lowered demand for goods that can no longer be afforded, and lower tax revenue as jobs vanish. “That is why the actual cost of saving state and local jobs is likely to be 20 to 40 percent below their budgetary cost,” Obama writes.

So far, the President has not been able to persuade lawmakers of the importance of more stimulus in the short term to just maintain, let alone further, economic recovery. But this is the strongest statement yet, clarifying what some Congressional aides have considered mixed signals on deficit reduction and job creation. Here, the President is affirmatively asking for over $50 billion dollars in new stimulus.

The next move would be in the Senate, where the tax extenders bill is on the floor. But Senate leadership has not rounded up 60 votes, and while they’ve re-inserted the FMAP funding, the COBRA subsidy has only been offered as an amendment.

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