Syracuse Post Standard, May 28, 2008, Thursday

Syracuse Post Standard

May 28, 2008, Thursday

Syracuse Post Standard

Keep stimulus money at home

By Michael Zuckerman

You might be surprised to learn that state governments may be using federal stimulus dollars on offshore contracting.

That's right - states may spend billions of the $787 billion stimulus package approved in February to "stimulate" the economies of India, Mexico, Poland or (gasp!) China, rather than Main Street USA.

The federal response to the current recession has put billions of taxpayer dollars in the hands of state governments. If history is any guide, we know the states will use some of this money on offshore contracting. This hampers our economic recovery.

The $100 billion-plus for the states includes $53.6 billion to help avoid cuts to essential services like education; $4.2 billion to administer unemployment compensation; $4 billion for law enforcement; and $1 billion to help collect child support.

Implemented in the right way, this aid would provide more benefit than meets the eye. The stimulus effect magnifies each dollar of spending, giving the taxpayer more bang for her buck.

Just think: When a state uses federal money to upgrade computer systems, for example, it hires contractors, employs workers and buys materials. The state not only receives a new computer system, but reaps the downstream benefit of those contractors, workers and material providers spending money in the local economy and growing their business.

As President Obama said, "I think the ripple effects of this (stimulus) package won't be entirely documentable, but I think it will be significant."

But the stimulus effect is virtually lost on state projects shipped overseas. If a state upgrades its computer systems with workers in India, the ripple effect will be felt not on Main Street, but rather in on some avenue in India.

Although there is something to be said for trade, the immediate concern is domestic stimulus. The allure of inexpensive offshore contracting must yield, at least in the short-run, to reviving our struggling economy by investing in domestic workers and industries.

A major way for states to prevent offshore contracting of federal stimulus dollars is to resist the urge to contract-out federal stimulus dollars. It has been well documented that privatization and offshoring go hand-in-hand. That is, when states hire private contractors, those contractors have frequently gone overseas, often without the knowledge of state officials.

Although we don't know how much state work goes offshore because states don't track this - it could be as high as $3 billion per year - we do know that virtually every state has offshore contracts, often relating to information technology. And for reasons of constitutional dimension, states cannot unilaterally ban contractors from offshoring state contracts. Thus states should use in-house resources to implement the federal stimulus dollars.

Once we are back on an economic growth track, we can revisit the debate about outsourcing and offshoring. Until then, it's elementary: State budget officers can help pull us out of the recession by keeping federal money at home.

Michael Zuckerman is a student at Cornell Law School, with a degree from the New York State School of Industrial and Labor Relations at Cornell University.