by Tracy Ostroff
Associate Editor

President Bush reasserted his economic proposal January 28 in his State-of-the-Union address, insisting that cutting taxes will spur investment, promote growth, boost investor confidence, and jump start the American economy. The president again called on Congress to speed up tax relief and eliminate taxes on corporate dividends.

“Jobs are created when the economy grows, the economy grows when Americans have more money to spend and invest, and the best and fairest way to make sure Americans have that money is not to tax it away in the first place,” the president told Congress. “Lower taxes and greater investment will help this economy expand. More jobs mean more taxpayers and higher revenues to our government.”

Bush said his proposals would “improve the bottom line for more than 23 million small businesses.” Overall, the president said, “the best way to address the deficit and move toward a balanced budget is to encourage economic growth and to show some spending discipline in Washington, D.C.” He said his budget will increases discretionary spending by 4 percent next year, at about the same rate as the average family's income.

Economic issues echo nationwide
While President Bush was urging lawmakers to show “spending discipline” in Washington, New York Gov. George Pataki (R) was preparing to unveil the next day a $90.8 billion state budget proposal that features sizable reductions in education and health-care spending to “grow the state out of crisis.”

Pataki’s budget announcement is emblematic of governors who are warning lawmakers to tighten their purse strings and bracing constituents for further cuts in programs and services. Not all governors have yet delivered their yearly state-of-the-state reports, but for many who have, the message was one of fiscal restraint, cautionary spending, and budgetary reforms.

Of all states, 42 began their session before January 21. The National Council of State Legislatures (NCSL) predicts that “a dichotomy of declining revenues and increasing demands will force each of the 50 states to find innovative ways to balance their budgets or face tough policy choices.”

Many of the governors had been holding out hope that the federal government would infuse cash into state coffers for basic priorities, including homeland security, health-care, Medicaid, and education reform. Those hopes dimmed, however, in the wake of this month’s announcement of President Bush’s budget proposal, which some analysts and budget officers say would only add to the state’s burdens. The states fear that the president’s proposal to eliminate taxes on corporate dividends will make them unable to collect the tax revenue at the state level. State and city officials also have said that eliminating dividend taxes would shift investments away from tax-free municipal bonds and toward stocks. State budget analysts say this would be particularly devastating for states because those bonds help local and state governments finance costly transportation, school construction, and other infrastructure projects. (See related AIArchitect article.)

Not good for construction projects
The bleak situation is not limited to one area of the country, the AIA’s State and Local Government Affairs team reports. In California, leaders are projecting about a $20- to $30-billion deficit. In New York, officials describe a deficit approaching $11.5 billion over the next 14 months. For some states, last year’s short-term budget fixes will further exacerbate the strain on state governments during this year’s fiscal cycle. These deficits will be a major factor in deciding if there will be funds for priorities such as school construction and renovation, planning, and other livability issues. They predict that issues such as volunteer liability “Good Samaritan” protection, homeland security, state building code adoption, and permit streamlining could see movement because all or portions of these initiatives can be advanced without new spending.

These fiscal problems may translate into lost revenue for capital spending on school construction, transportation improvements, and planning and building funds for homeland defense projects. This may be particularly troubling for representatives of the AIA State Government Network, who have identified increasing procurement activities as one of their top goals in 2003. The Government Affairs staff continues to warn architects that various state lawmakers will likely propose taxes on architecture services and new or enhanced license or document filing fees. Other areas for potential concern to architects include changes that states may consider to processes governing design/build, the bidding of A/E services, and construction management if officials believe alternative approaches offer cost savings.

State executives cite livable communities’ importance
Governors linked the importance of fiscal restraint to preserving their top budget priorities, which, for many, included smart growth and livability issues. Kentucky Gov. Paul Patton (D) noted his state’s legislature would face a choice of increasing revenue or cutting funds for projects, including public infrastructure and livability programs. New Jersey Gov. James McGreevey (D) spent a large portion of his speech on development and sprawl, promising to renew old industrial sights, encourage building in urban areas, and preserve farmland and open spaces. “Every part of New Jersey suffers when we plan haphazardly," the governor declared. McGreevey later unveiled a color-coded planning document that illustrates where his administration wants to direct and control growth.

Other chief executives recognized the importance of regional and urban planning. Michigan Gov. Jennifer Granholm (D), for example, has appointed two of her state’s most respected public officials to head a bipartisan commission on development patterns and land-use. New York’s Pataki specifically mentions New York’s natural environment as a major contributor to its high quality of life. North Dakota Gov. John Hoeven (R), on the other hand, uses “smart growth” to mean solely economic development, barely touching on affordable housing, community schools, and a strong sense of community.

Copyright 2003 The American Institute of Architects. All rights reserved.