"Cinderella Effect" Poses Fiscal Threat

From Today's News Journal:

Consider the Cape Henlopen School District's warning the first of many. The district announced it is in danger of losing 19 teachers because the federal stimulus money is drying up.

It's the Cinderella Effect, and it will be happening all across the state, as well as across the country.

The massive stimulus package -- the American Recovery and Reinvestment Act -- will run out in the next fiscal year. School districts like Cape Henlopen used the money as a stopgap measure to keep people employed -- and to put off the hard decisions on money that will eventually come.

The recovery act is a year old this week. It was passed with great fanfare and enormous partisan bickering. White House officials promised it would reduce unemployment and get the country moving again. The actual effect, though real, was less than announced. The nation still has to spend a lot of the $862 billion the Congressional Budget Office now says the bill will cost. We're likely to see benefits in the future. However, few economists believe jobs will come roaring back.

The stimulus helped Delaware and other states to pay for Medicaid help for the newly unemployed and to keep teachers working.

The Cinderella Effect comes when that money disappears. Another stimulus is likely, but it should be smaller and offset by taxes and cuts stretched out over a longer time. In the meantime, school districts and local and state governments should be preparing for a long-term fiscal crisis.