'Spend it now' gets mixed reviews Economists unsure if plan will boost the economy.

November 04, 1991|By Jon Morgan | Jon Morgan,Evening Sun Staff

In trying to jump-start the state's economy by rushing construction projects, Gov. William Donald Schaefer is using a technique that President Bush and other national leaders have been unable to use because of the federal deficit.

Schaefer -- demonstrating that his famous impatience with bureaucracy has spread to macroeconomics -- last week unveiled a plan called "Maryland Goes to Work."

It calls for already-planned projects to be commenced as soon as possible to inject money into the economy.

"We're going to do our part to stimulate the economy and move forward as fast as we can," Schaefer said.

He has asked his Cabinet officials to look into their budgets -- especially the state's $330 million capital budget -- for projects that can be pushed forward.

He said contracts for such capital projects will be speeded up partly to help construction companies, which have been hard hit by the recession.

In general, aides say, he wants projects that would otherwise take 12 months to get under way to begin in nine, and those taking nine months to begin in three, and so forth.

And he wants private industry to do the same.

Economists are skeptical that the state has the ability to spend its way out of a recession largely caused by a national downturn. But many of them say the plan could help under the right conditions.

"That's the traditional response to economic problems -- a public works project," said William F. Treacy, economist with MNC Financial.

Governments have frequently turned to massive public spending spur their economies, but the U.S. has been restrained from that during this recession by its burgeoning budget deficit.

States are usually prevented from spending more than they take But Schaefer is trying to accomplish something similar by taking money that would be spent later in the year and spending it earlier.

"The difficult part is how you fund it. On the federal side, you can deficit spend. But you can't do that at the state level," Treacy said.

John E. Petersen, a senior director of the Government Finance Research Center, a Washington-based consulting group, said such efforts can be successful.

"If you've got the credit, it's a great idea," Petersen said. Borrowing rates are at all time lows now, and materials and land-acquisition costs may also be cheaper because of the recession.

States are now borrowing at the cheapest interest rates in 10 years, making it a fiscally good time to begin projects, he said.

"If there is going to be countercyclical activity, it's up to the

states and locals [governments] to make the move," Petersen said. "It may have a marginal impact but it's a positive impact."

Ann Franklin, an economist with the Department of Fiscal Services, the auditing arm of the General Assembly, said "I guess the cash flow issue is the question of the hour."

Much of the budget can't be pushed forward, and the next bond sale -- where the state gets much of its cash for capital projects -- is scheduled for February, she said.

But some projects funded by the Transportation Trust Fund, for example, can be pushed forward, she said. Whether or not enough projects can be pushed forward to have an impact is unknown, she said.

"It depends on how much you could get going. But at this stage of the economy, a little bit could help especially if it makes people feel a little more secure," she said.

But, she said, "it appears the announcement is a little more form than substance."

In general, she thinks the state's economy, after a brief show of life in the summer, has slumped back and is "dragging along the bottom." The next few months are likely to be bleak, as some important industries -- such as construction and tourism -- slip into seasonal lulls, she said.

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