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With federal stimulus funds running out, economic worries grow

Much of the $787-billion stimulus has been spent, creating jobs and extending jobless benefits. But with lawmakers reluctant to approve more funding, concerns are rising about staving off another recession.

June 30, 2010|By Alana Semuels, Los Angeles Times

"There's nothing out there," said Jennifer Tilt, a 52-year-old resident of Bloomington, a town in San Bernardino County, whose unemployment benefits will expire soon. Tilt, who has a bachelor's degree, said she's applied for jobs at fast-food restaurants to no avail. She's dependent on her two grown children and her mother's Social Security check to pay the bills.

Other programs are in jeopardy as well. The federal government temporarily increased the amount it contributed to state Medi-Cal payments by 11.6%. Without further congressional action, those contributions will end Jan. 1, halfway through the state's fiscal year. The state will have to find the money for Medi-Cal elsewhere, probably through $1.8 billion in further cuts, according to the governor's office.

"The human impact of requiring us to find another $1.8 billion in spending cuts to replace federal funding that was designed to help states avoid deep cuts … is both cruel and counterproductive," Gov. Arnold Schwarzenegger wrote to the state congressional delegation earlier this month.

Republicans say extending benefits and other provisions of the stimulus bill will add to the country's trillion-dollar deficit. "Here's another idea Democrats should consider, one that Americans have been proposing loudly and clearly: Stop spending money you don't have," Republican leader Mitch McConnell of Kentucky said last week on the Senate floor.

But Democrats — and some economists — say that spending money now to create jobs and fund unemployment benefits is the only way to stave off another recession.

"What worries me the most is this idea that austerity is going to be helpful," said Michael Reich, a professor of economics at UC Berkeley, who said that ending unemployment benefits could drive more people to file for disability and hamper long-term growth. "When you make an economy shrink, it makes it harder to pay back debt in the future."

The nation's construction industry provides a window into the tough choices facing lawmakers. Federal tax credits have helped drive home sales while stimulus spending on infrastructure has put laborers back to work. Such subsidies are unsustainable in the long run. But when to pull the plug?

New-home sales dropped 33% in May as home-buyer tax credits ended. Construction employment declined in 25 states that same month, according to the Associated General Contractors of America.

"In the next few months, unless some other kind of work comes along, we're not feeling very optimistic," said Ken Simonson, chief economist for the contractors trade group.

That's not what unemployed construction worker Hector Cardozo, 38, wants to hear. His hair has grayed from the stress of looking for work, and he's thinking of going on disability.

"I can't find work, and the government doesn't have work for me," said the Corona resident. "What more can I do, put a gun to my head?"

alana.semuels@latimes.com

Times staff writer Alejandro Lazo contributed to this report.

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