Federal Brinksmanship Threatens Economic Recovery

One year ago this week, I left Washington, DC, for California to join the CBP as its new executive director. As I shared the news of my impending departure with my friends in the state/local policy community in DC, many of them would say something like “Are you crazy? Things in California are so broken.”

Fast-forward a year. California’s economy is growing. California’s voters approved a set of temporary tax increases last November that are providing new revenues to a state budget that had been confronted by several years of severe shortfalls. State policymakers have approved a 2013-14 budget that reinvests in education, expands access to health insurance as part of federal health care reform, and begins to pay down state debt incurred amid the economic struggles of the past decade. More recently, state policymakers passed an increase in California’s minimum wage, providing a financial boost for low-wage workers, who have seen their earnings decline in recent years.

Meanwhile, back in Washington, federal policymakers have been playing political football with the nation’s economic recovery and the full faith and credit of the US government. They have yet to negotiate an agreement that funds the federal government, threatening a government shutdown if an agreement isn’t reached by the start of the new federal fiscal year tomorrow. Federal brinksmanship is also in play over whether to raise the federal debt ceiling or default on US debt – a prospect that would threaten economic performance and job creation in the midst of a fragile economic recovery. These debates follow closely on the heels of a vote in the House of Representatives a couple weeks ago that would slash funding for federal food assistance – the Supplemental Nutrition Assistance Program (SNAP) — eliminating benefits for 3.8 million people in 2014. This is about the same number of people that the program lifted above the federal poverty line in 2012, according to US Census figures. Federal policymakers will have another opportunity to make the wrong decision come December when, lacking federal action, emergency unemployment insurance benefits will expire.

Poor policy choices at the federal level hurt California workers and their families. And despite the strides made in California in the past year, our state’s continued economic recovery will depend, in part, on actions taken — or not taken — in Washington. Our latest analysis shows that despite a general upswing, California’s recovery has yet to reach large segments of workers and their families, and the job market remains deeply challenging. Federal policy will also have a profound effect on the state’s fiscal outlook, with federal dollars comprising the second-largest piece of the state budget. (A prior CBP report details how federal dollars are spent in California.) A federal government shutdown, a decision to make an increase in the debt ceiling contingent on another round of federal spending cuts, or a default on US debt will threaten the nation’s and California’s already-fragile economic recovery. Failure to extend federal emergency unemployment insurance in December would place additional strain on those in California and elsewhere who are seeking work amid a weak job market.

The economy in California and nationally is beginning to come back, but our prospects are threatened by federal politics that appear “crazy” and “broken,” where some members of the US Congress are willing to jeopardize the recovery and imperil families and communities for the sake of political gain. Smarter choices by policymakers at all levels — like those made by California’s voters and policymakers in the past year — present an alternative way forward.

— Chris Hoene