If we’re serious about helping our economy this month, we need to stop the tax hikes and we need to cut spending. Let’s cut spending back to 2008 levels – back before the bailouts, and the ‘stimulus,’ and all the nonsense. It would save about $100 billion in the first year.
John Boehner, September 15, 2010 
Republicans triumphed in Tuesday’s elections with a list of promises that mandate fiscal responsibility and spending cuts. Cutting government spending while we slip in and out of financial crisis is a tricky proposition. The fiscal prognosis for states and localities has not improved, and their survival is largely attributable to Uncle Sam’s stimulus generosity. The Recovery Act allocated $282 billion for state and local programs. $154.8 billion was already spent by September 3, 2010. 
Where did our money go? From social spending to infrastructure, the list is long and continues to grow. By year’s end we will spend $56.2 billion for the Federal Medical Assistance Percentage (FMAP), which provides states with Medicaid reimbursements.  $16 billion in FMAP spending was included in August’s Teacher’s Jobs Bill.
Education accounted for $24.4 billion, with $10 billion additional approved last summer.  12,300 highway projects chewed up $25.6 billion in infrastructure spending.  Energy efficiency and weatherization projects went through $4.2 billion. 
What did we get for our billions? The stimulus funds were not sufficient to balance state and local budgets, to reduce their debt, or to prevent growing state and local deficits that are anticipated to total $163 billion for 2010 and 2011.  In order to just break even, state and local governments would have to pass 12.3% spending cuts immediately, and continue with ongoing 12.3% cuts or equivalent tax increases each and every year going forward. 
Liability for health benefits at the state and local levels is estimated at $600 billion, on top of unfunded pension liabilities as high as $2 trillion at the end of 2009.  These problems were exacerbated by investment losses and drops in tax revenue during the recession, but the refusal of states to make essential spending cuts, or to legislate benefits reductions for their employees, has added to a crisis that has been growing for years, weighs down our economy, and potentially adds trillions to the national debt.
Enter the new House leadership, and Mr. Boehner’s promise to cut spending back to 2008 levels. Implementing spending cuts that curtail stimulus funds to states and localities will be a monumental test of Republican resolve. GOP leadership has no choice but to live up to their pledge to reduce spending, but the cuts are going to hurt, and Democrats will quickly resurrect their “favoring the wealthy” rhetoric when excess social spending is curtailed.
Is the PR arm of the GOP up to the task of selling spending cuts to the nation? Our economic future depends on it. Federal handouts must be scaled back before out of control state and local budgets sink our national economy, committing taxpayers to a bailout that will make the stimulus look like pocket change.
1..John Boehner: Stop All the Tax Hikes & Cut Spending Now to Help Create Jobs. Press Release. September 15, 2010.
2..Government Accountability Office. Recovery Act. Opportunities to Improve Management and Strengthen Accountability Over States’ and Localities’ Uses of Funds. September 2010. Summary. p. 1.
5..Ibid. Summary. pp. 1-2.
6..Ibid. Summary. p. 2.
7..United States Government Accountability Office. Report to the Congress. State and Local Governments’ Fiscal Outlook, March 2010 Update. March 2010, p. 4.
8..Ibid., p. 8.
9..Board of Governors of the Federal Reserve System. Chairman Ben S. Bernanke. Challenges for the Economy and State Governments. August 2, 2010.