How do states afford needed investment and budget cuts?

How do we do it all?

On one hand, how do we batten down the hatches, from town halls to statehouses to Capitol Hill, accepting severe budget cutbacks to cope with our near-paralyzing budget deficits?

That's most of the talk these days. But there's another question: How do we also prepare for competitive cities, regions, states and nations? How do we afford serious investments in high tech and "clean" tech, neglected infrastructure, promoting exports, regenerating cities, and education from kindergarten to college?

Fail to invest soon and smartly across those fronts — and we're clearly slipping in many — and more ambitious and strategic world powers, from China to India to Brazil, will be poised to eat our collective lunch. Translation: declining American living standards, dramatically diminished opportunities for our children and grandchildren.

The role of the states in solving the dilemma got an airing at a recent Brookings Institution forum on the states' fiscal challenges.

"The governors and states are under tremendous pressure," said Bruce Katz, Brookings' director of metropolitan policy, "not just to balance their budgets, to restart their economies, but in fact to transform their economies." There's no going back, he suggested, to the pre-recession economy with its heavy debt and "hyper-consumption."

First, there's lots of repair to be done. Brookings' "Hamilton Project" released a short but challenging strategy paper saying that avoiding deficit spending is not the states' only problem. It's also an alarming slowdown since the 1970s in the robust investments in education, health and infrastructure that characterized U.S. development most of the century. Spending on infrastructure slowed down dramatically; government support for universities declined. And while spending on schools increased, the century's dramatic early gains in citizens' educational attainment weren't sustained.

So what shifts are necessary to lay the groundwork for a growth economy, educating the next work force, building the necessary roads and bridges, assuring access to a stable power supply and the pressing new need — universal broadband access?

First step, the report proposed: Set priorities in such fields as education (with a strong focus, for example, on community colleges to build basic work skills).

A second focus: To get our infrastructure straight, don't just build roads and bridges. Rather, subject each project to rigorous cost-benefit analysis to make sure it pays off in the most feasible mobility and economic development. And look for ways to get benefitting landowners to pay a share of the costs.

And third: "Invest effectively." Edward Rendell, just retired as governor of Pennsylvania, spoke of how "a government that doesn't invest in its own growth will wither and die." He touched on multiple targeted investments he'd made in Pennsylvania, yielding important dividends (even though some were funded through gaming revenues). One example is the schools. With added state support, Pennsylvania students went from the bottom third to the top five in national readings tests during his tenure.

To "jump-start" Pennsylvania's economy, Rendell created — notwithstanding the need to cut more than $2 billion in other areas — a $2.3 billion economic stimulus program, including $650 million in venture capital funds or guarantees.

"We spent a boatload on infrastructure," Rendell continued, including rebuilding 1,600 bridges at one time. Plus, rail-line spurs and selected highway overpasses were constructed to hold or attract manufacturers. And "Keystone Innovation Zones" were created around many of Pennsylvania's university and hospital ("eds and meds") centers. Inside the zones, student or faculty enterprises less than seven years old get tax exemptions to hold them in place, building local wealth and skills.

What states need, Robert Puentes of Brookings suggested, are "super-secretariats" — multiple Cabinet secretaries meeting together to make sure the investments a state does make are strategic, tested for real stimulus to commerce, connecting the dots with energy saving, housing, environment and other priorities.

This should lead to a discipline of economy — few new scattered rural road expansions, more "fix it first" roadway decisions, and strict accountability of the need and impact for new highways.

A challenge all this leaves unanswered: How to mobilize public opinion, not just for handy new local roadways, for example, but for full, long-term efficiency?

Examples of dubious state spending are still around, even in this recession. Virginia Gov. Bob McDonnell is proposing $3 billion in borrowing for a $4 billion roadway plan focused solely on new construction. He released a 900-project list that includes a major new road in lightly populated Southern Virginia.

Such examples suggest: for all our need for smart, efficiency-oriented state leadership, there'll still be a place for citizen- and public-interest whistleblowers.

Neal Peirce's email address is nrp@citistates.com