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Will states use stimulus funds to close their budget deficits?

Dan Walters, a columnist with the Sacramento Bee, wrote that California, which will be $40 billion in the hole over the next 18 months, might be able to make up some of the difference with federal stimulus dollars.

California’s share of direct spending in the package has been calculated at $21-plus billion, and Jed Kolko, an economist for the Public Policy Institute of California, told an economic seminar in Sacramento Monday that about $14 billion of that could underwrite state education, medical care and other spending programs over the next two years.

What’s this got to do with the fate of giant yellow earthmovers? Well, if California can spend two-thirds of its stimulus bonanza on spending that was going to happen anyway, doesn’t that water down the stimulus effect quite a bit?

I heard the other day that the state of Texas, which usually runs a pretty tight ship, has an $8 billion deficit on its hands. With state budgets drowning in red ink from coast to coast, I can’t help wondering how many are going to be tempted to use Obama’s billions to clean up their balance sheets rather than launch a bunch of big construction projects.

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Tom Mangan posted at 11:35 pm January 27th, 2009 |

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  1. Mahkno says:

    That’s pretty much what the banks have been doing, shoring up balance sheets rather than making new loans.

    Permalink | Posted January 28th, 2009, at 6:05 am

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