Congress: Don’t Cut Aid to States

While the dollar totals of the House and Senate versions of the Economic Stimulus bills are just about the same, one big difference is that the Senate version cut the amount of aid to state governments from about $60 billion to about $20 billion.

This is such a very bad idea. If the House does anything to rectify this bill, it must put that state funding back in.

And I will tell you why.

States get the cash to run things in large part from property taxes. Some states more than others. And who pays most of these property taxes? Big corporations.

Big corporations that are, by the way, becoming economically strapped themselves because profits are turning into losses. Some of these businesses will gut it out, some will benefit from the stimulus, but some of them are going to go belly up or file for bankruptcy under Chapter 11.

Businesses and corporations that contribute a good deal towards the funding of state and local services simply aren’t going to be there anymore. And when that happens where are the states going to get their funding to say, run a police department, staff a school, or pay the salaries of early responders?

Case in point. A multinational chemical firm with a huge presence in the Houston area, LyondellBasell has filed for bankruptcy under Chapter 11. This Dutch-owned company has chemical plants all over the Houston area and suburbs. A big presence in Pasadena, Houston and Galena Park. In total, LyondellBasell pays $113 million in property taxes. Taxes that go toward funding things like school districts and municipal services like police and fire protection.

And on Monday, February 2^nd, those taxes for 2008 were due.

But the only thing that came out of the treasury coffers of LyondellBasell last Monday was . . . crickets.

The sound of crickets and no promises of this critical funding anytime soon.

From the Chronicle:

“Meantime, some local school districts, municipalities and counties where LyondellBasell has operations said they could face holes in their budgets because of the shortfall in collections.”

“Take the Pasadena Independent School District. Closely linked to the company through teachers whose spouses work at a nearby plant and plant workers’ children who attend its schools, the district also relies on $2 million a year in payments from the chemical maker.”

Now there are some states where bankruptcy of big chemical firms won’t affect the bottom line because their taxes don’t go to pay the salaries of teachers and policemen. States like New Hampshire, which funds its schools through taxes on liquor and cigarettes.

But that is of little comfort to those states that rely on corporate property taxes to fund their basic services.

And tragically, the Senate has placed in their stimulus bill a provision to allow fewer upper middle class Americans to have to pay the Alternative Minimum Tax, to the tune of $79 billion. This is “trickle down theory” writ large. A theory that has been totally discredited.

So the last thing, the very last thing you want to do in these times is remove the states from the stimulus bill, especially when you add, in its place something that prevents upper end middle class from having to pay the AMT. These are not the people, after all, who need stimulus.