Congress Can’t Afford to Bail Out High-Spending States

 

Gov. Andrew Cuomo (NY-D) speaks to union group. (Lev Radin / Shutterstock.com)

Congressional Democrats are doubling down on their demand that, in response to the coronavirus pandemic, the federal government must bail out free-spending states. There are several terrible ideas out there just now (destroying minority-owned businesses in the service of racial equality comes to mind), but this is one of the worst.

The crisis in problem states is fueled mainly by unfunded pension liabilities. Public employee unions and the politicians they elect have for decades promised lavish pensions to union members, far exceeding those paid to wealth-creating private-sector employees. But adequate funding was never provided and the over-optimistic financial market returns didn’t materialize. The result is a growing total of $4.9 trillion in contractually enforceable liabilities to state retirees. There is no way the states can make these payments.

In retrospect, it seems doubtful they ever intended to. Much better for the union chiefs to take credit for the great benefits while the politicians avoided politically risky tax increases to pay for them. Instead, they counted on being able to pressure the feds into a bailout once they had become too big to fail. The coronavirus pandemic seems like their golden window of opportunity.

So here they go. “You know the state governments are broke” and need handouts to deal with the pandemic, pleaded New York Gov. Andrew Cuomo. But Cuomo had complained about a $6 billion budget shortfall, runaway Medicaid costs, and taxpayers fleeing his state well before the pandemic.

In April, rather than the belt-tightening that was warranted by threatening circumstances, he signed a business-as-usual $177 billion budget that authorized borrowing $11 billion more “if needed.” No sacrifice there.

In Illinois, state Senate President Dan Harmon demanded that his state’s congressional delegation back $41.6 billion in subsidies to Illinois, only $2.6 billion of which would go to coronavirus costs. Yet Illinois also refuses to embrace any fiscal discipline whatsoever.

The legislature just adopted a $40 billion budget that would create $7 billion dollars more in deficit. It includes a 24 percent pay raise for Chicago teachers, already some of the highest-paid in the nation, by 2024. One-third of the available funds went to pensions alone.

Senate Majority Leader Mitch McConnell warned, “there’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations.” Unfortunately, Republicans have a sorry record of caving on critical fiscal issues. President Trump seems interested in doing a deal.

But the states have already scored big money in the CARES act, intended for coronavirus relief. There was a $150 billion blank check to the states plus $90 billion earmarked for schools, public transit, and Medicaid. That is the equivalent of three months of tax revenues for all the states combined, not exactly chump change.

It’s curious that the Left refuses to recognize that the proposed bailout is profoundly regressive. New York, California, Massachusetts, and other high spending states are among the most wealthy in terms of per capita income. it would be a bad look to force residents of Arkansas and Mississippi to bail out Manhattan or Silicon Valley, reallocating money to the wealthy from those less fortunate.

Moreover, there is no evidence that high spending states provide better public services than the others. For example, New York spends twice as much per capita as Tennessee yet provides inferior services and schools to its citizens. California wants a bailout but has money to spend on welfare, medical care, and education for the illegal immigrants they encourage and protect.

States worried about their fiscal health could logically look to states like Arizona and Utah to see where money could be saved, but they’re not interested.

Spending is all about patronage, not the efficient provision of services. What looks like waste to the casual onlooker, like welfare programs for the able-bodied without work requirements, six-figure pensions for civil servants and sweetheart deals for the politically connected, produce loyal, docile constituents for spenders.

High-spending states will continue until they can’t. Subsidizing their wastefulness will only perpetuate it. Taxpayers from more frugal states should not even consider sustaining these unaccountable, one-party political machines.

Published in Economics
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  1. Gary Robbins Reagan
    Gary Robbins
    @GaryRobbins

    Absolutely spot on.  A good reason to hold the Senate, and to ask Democrats running in red states if they will oppose the bailout of blue states.

    • #1
  2. Mark Camp Member
    Mark Camp
    @MarkCamp

    Excellent analysis, Tom!

    But I think the title is inaccurate and doesn’t reflect the points made in the article.

    In fact, once the people have foolishly ceded to the Federal Government the unconstitutional power to create and spend units of the people’s money, Congress can afford, temporarily, to extinguish any liability of its political friends that is stated in fixed units of money, with no one bearing the real loss except its political enemies: especially, the bourgeoisie (the small businesspeople and ordinary savers). 

    That temporary ability only ends after hyperinflation has completely destroyed the value of the country’s money.

     

    • #2
  3. Unsk Member
    Unsk
    @Unsk

    The Big Blue States are going to be horribly underwater.  I’m pretty positive that my State of California will be in the red to the tune of over $50 Billion, since it is so addicted to the super Rich making loads and money and that’s not  happening this year baby because they are driving millions of businesses out of business. 

    The Blue States  have done all they can to absolutely wreck their economies.

    Hell NO! We should not bail them out! Every State that has had unreasonable  Pandemic restrictions should get absolutely no money.  None whatsoever. 

    However that said, the Big Blue States will likely play a very deadly game of chicken cutting police and fire services before anything else, and then will have no problem watching  their states burn in utter chaos unless the rest of America bails them out.  It’s gonna get ugly. 

    • #3
  4. MiMac Thatcher
    MiMac
    @MiMac

    Boy are you WRONG- that cost is a rounding error in the left’s agenda:

    https://www.washingtonexaminer.com/washington-secrets/mayors-back-reparations-could-cost-6-2-quadrillion-151m-per-descendant

    • #4
  5. Miffed White Male Member
    Miffed White Male
    @MiffedWhiteMale

    “Congress Can’t Afford to Bail Out High-Spending States”

     

    When has that ever stopped them?

    • #5