19 February 2011, Port Clinton News Harold.com By: Russ Zimmer, an excerpt of the article “As private pay plummets, public pay in Ohio increases”
A plunge in spending by state and local governments will slow the growth rate of the economy, but is unlikely to stop it in this instance, said Tom Traynor, professor and chair of Wright State University's economics department. This is because the positive potential effect contracting government -- making Ohio more competitive for business -- won't be immediately realized, but the reduced earnings of public employees will. Many states are facing the same dilemma, he said. "Based on the rough information available, the growth rate of the state economy appears to be similar to that of the national economy," Traynor wrote in an e-mail. "If so, the balancing of the state budget will reduce the economic growth rate, but won't make it become negative." Raising taxes slows growth for basically the same reason as paying less to government employees: Both discourage consumer spending, according to Traynor. The state budget, by law, must be balanced, so one of the two -- cut expenses or raise revenues -- or a combination of both must be done, regardless of the timing, he said. "It would be easier to make cuts or increase taxes in a healthy economy than in this economy," Traynor said, "but unless new funds come from an unexpected source, the state really doesn't have a choice but to balance the budget."
