With the jobless rate high and consumer confidence low, it's hard to believe the recession is over.
But in fact, the recession officially ended more than two years ago -- all it takes is two consecutive quarters of the economy not contracting.
The problem is that because the recession was so long and deep -- it lasted for 18 months and cost the U.S. about 6 million jobs -- there is still plenty of pain and dislocation in the economy. Most economists predict the U.S. won't return to pre-recession GDP and employment levels for another three or four years.
But the recession's official end has apparently also ended the debate over the need for more federal stimulus spending.
Whether the stimulus package passed in 2009 helped the recovery and how much is an open question among economists, who don't have a parallel scenario without the stimulus to use for comparison.
But most economists agree the stimulus did make the recession less painful to thousands of businesses and households -- pumping $867 billion more into the economy in the short run propped up all kinds of spending by government, business and household.
DIFFICULT TO GRADE
With the economy seeming to be slowly adding back jobs, grading the stimulus may be moot.
It does raise continuing questions, however, about the role of government in priming the private economic pump. How Arizona's political leaders answer them will be vital to how well the state as a whole pulls out of the recession.
One problem with grading the stimulus is that the feds didn't do a very good job of keeping track of jobs, in part because it didn't define its terms. As the Daily Sun reported last Sunday, the official government Web site reports 80 Flagstaff-area jobs on a local stimulus of $23 million over two years. Doing simple arithmetic would put the annual cost per job at nearly $150,000.
Or take the seven jobs listed for a $7.4 million grant to North Country Health Care for two new clinics and an expansion. All the jobs are converted to annual full-time equivalents, even though individual construction workers rarely are on a job more than a few months, depending on their specialty. North Country says that at the height of the construction, there were 26 people working full-time on the projects.
The examples go on -- including buying new buses for Mountain Line, building new classrooms for the STAR charter school, retaining six Flagstaff police officers for three years and 15 Early Head Start teachers. The government web site reports the direct spending on FTEs but not on construction materials, supplies and administrative overhead. There's no distinction between jobs added or saved. Nor are there any multipliers for secondary spending in the economy and the jobs that spending creates.
AFTER STIMULUS RUNS OUT
In short, trying to use Flagstaff's experience with the stimulus to make or break the case for direct government investment as a way to end a recession seems futile. We suspect other cities and regions would have the same difficulty. There are just too many other factors at work in the economy -- led by a halt to housing construction, falling home prices and millions of foreclosures -- to reach a definitive conclusion.
One test may come when some of the short-term stimulus grants that were invested in ongoing operational expenses run out. The assumption back in 2009 was that the economy would be turned around by 2012 and tax revenues would pick back up. But now that we know in Flagstaff, for example, that sales taxes continue to be flat, how does the city plan to pay for those six police officers? And what will happen to those 15 Early Head Start teachers?
Those questions don't appear to be as pressing at the state level -- officials estimate Arizona will overcollect taxes and revenues by $1.3 billion next fiscal year. That's a reflection mainly of the substantial cuts by the Legislature and governor in spending on health, education and social service programs. The governor has already announced she won't force the counties to take state prisoners sentenced to less than a year behind bars, a move that will save Coconino County alone $4 million.
ANOTHER FINANCIAL CLIFF
But just beyond the one-year fiscal horizon is the next year -- FY2013-14 -- when the state faces another financial cliff. The one-cent sales tax for education that raises $900 million a year runs out and state matching obligations under the new federal health care plan are likely to increase.
Given the track record of the legislative supermajority in Phoenix, however, we foresee short-term thinking combining with political ideology to generate momentum for a return of the "surplus" in the form of further tax cuts.
But not even considering the fiscal cliff two years from now, cutting state revenues at the expense of restoring vital state programs would be a mistake. The deep cuts to child protective services in the midst of a recession, for example, have already come back to haunt the program. Caseloads soared as social workers were laid off, and the result has been a surge in child abuse and endangerment cases as families struggle with job losses, money woes and the resultant alcohol abuse and domestic violence.
The state's underlying problems stem from a boom-and-bust economy dependent on rapid growth that is unsustainable. Industries like housing, retail and tourism rely on relatively low-skilled labor that delivers low returns, both financially and from the standpoint of raising the standard of living.
THREE KEY AREAS
If the state has a short-term surplus, it should use it to invest in the three areas that nearly all economists agree are key to adding value to the private economy and thus the quality of life: education, infrastructure and research and development in targeted industries like renewable energy and biotechnology.
Yes, each area should have effective oversight so that taxpayers are getting the biggest bang for their bucks. But the alternative -- across-the-board tax cuts to business - not only deprives the state of needed recovery revenue for the targeted investments above but offers little assurance that the old boom-and-bust economy will be changed in any meaningful way.
The federal stimulus is largely old news. Its legacy likely will be that it kept the deep recession from becoming and seeming worse.
The state surplus comes amid a slow recovery and should be used for strategic short- and long-term public investments. We need to be sure that politics doesn't divert it for private purposes that aren't likely to advance the common good.
Serving this week on the Daily Sun's Editorial Advisory Board were Publisher Don Rowley, Editor Randy Wilson and citizen members Jean Richmond-Bowman, Rick Lopez, Joan Brundige-Baker, Jim Haslett and Stephanie McKinney.