Do Not Bail Out The States

We’ve said it before and it’s worth repeating. The federal government has no business bailing out the irresponsibly spending state governments. No business whatsoever. Sarah Palin agrees.

Instead of coming to D.C. cap in hand asking for more “free” money, they should follow the example of their more prudent sister states and take the necessary steps to sort out their own finances. They must start by reforming their insolvent pension systems. Many states have multi-billion dollar unfunded pension liability problems that they have refused to address for many years. They’ve deferred their spending problems, assuming the problem deferred would be an issue avoided; instead, it’s resulted in a crisis invited. These states still won’t reform their costly defined benefit systems for fear of offending the powerful public sector unions. Sooner or later, their pension systems will collapse unless they do what states like Alaska did, which is to swap unsustainable defined benefits, which are more like glorified Ponzi schemes, for a more prudent defined contributions system.

My home state made the switch from defined benefits to a defined contribution system, and as governor, I introduced a number of measures to build on that successful transition, while also addressing the issue of the remaining funding shortfall by prioritizing budgets to wrap our financial arms around this too-long ignored debt problem. When my state ran a surplus because we incentivized businesses, I didn’t spend it on fun and glamorous pet projects for lawmakers – though that would have made me quite popular with the earmark crowd. In fact, I vetoed more excessive spending than any governor in our state’s history, and I used the state’s surplus to bring our financial house in order by paying down our unfunded pension plans that some other governors wanted to ignore. This fiscal prudence didn’t make me popular with the state legislature. In addition to vetoing hundreds of millions of dollars in wasteful spending, I put billions of dollars into savings accounts for future rainy days, much like most American families do in responsibly planning for the future. I also enacted a hiring freeze and brought the education budget under control through a commitment to forward-funding. I returned much of the surplus back to the people (it was their money to start with!) through tax relief and energy rebates. I had proven as the mayor of the fastest growing city in the state that tax cuts incentivize business growth, and though the state legislature overrode some of my veto cuts and thwarted an additional tax relief request of mine, the public was supportive of efforts to rein in its government.

It’s one thing to veto spending and reduce the size of government when your state is broke. I did it when my state was flush with revenue from a surplus – though I had to fight politicians who wanted to spend like there was no tomorrow. It’s not easy to tell people no and make them act fiscally responsible and cut spending when the money is rolling in and your state is only 50 years shy of being a territory and everyone is yelling at you to spend while the money is there to build. My point is, if I could fight this fight in Alaska at a time of surplus, then other governors can and should be able to do the same at a time when their states are facing bankruptcy and postponing this fight is no longer an option.

So, let’s not continue to reward irresponsible political behavior. Instead of handing out more federal dollars, let’s give the governors of these debt-ridden states some free advice. Shake off the pressure from public sector unions to cave on this issue. Put up with the full page newspaper attack ads, the hate-filled rhetoric, and the other union strong arm tactics that I, too, had to put up with while fighting those who don’t believe a state needs to live within its means. Stand up to the special interests that are bankrupting your states. You may not be elected Miss Congeniality for fighting to get your fiscal houses in order; but in the long run, the people who hired you to do the right thing will appreciate your prudence and fiscal conservatism.

She’s right, of course. If an irresponsibly spending entity is not cut off from sugar-daddy’s money, that irresponsibly spending entity will not learn to spend responsibly. And it is a spending issue, not a revenue issue.

As Ed Morrissey says,

We do not need a federal supply of the hair of the dog. It’s time to tell the states to deal with their own mismanagement and to take responsibility for their own budgetary crises. The party is long since over, and the hangover gets worse with avoidance and bailouts.

19 Comments

  1. If an irresponsibly spending entity is not cut off from sugar-daddy’s money, that irresponsibly spending entity will not learn to spend responsibly.

    Responsible spending:

    The lights are going out all over America — literally. Colorado Springs has made headlines with its desperate attempt to save money by turning off a third of its streetlights, but similar things are either happening or being contemplated across the nation, from Philadelphia to Fresno.

    Meanwhile, a country that once amazed the world with its visionary investments in transportation, from the Erie Canal to the Interstate Highway System, is now in the process of unpaving itself: in a number of states, local governments are breaking up roads they can no longer afford to maintain, and returning them to gravel.

    And a nation that once prized education — that was among the first to provide basic schooling to all its children — is now cutting back. Teachers are being laid off; programs are being canceled; in Hawaii, the school year itself is being drastically shortened. And all signs point to even more cuts ahead.

    So China is busy building highways, busy building the world’s longest high-speed rail network, busy bringing broadband into rural areas, graduating 6.3 million university students annually, and doing its level best to haul tens of millions of peasants into the 21st century every year.

    And the US is letting bridges crumble, turning roads back into gravel to save money, cutting back on education – and giving tax cuts to the rich.

    Gee, I wonder why people keep commenting on your empire fading?

  2. It’s tough to trust the former governor of a welfare state when she says that the feds have no business transferring money to the states. But going beyond that, I don’t buy that this is a good idea at all. Higher federal tax rates mean that states cannot tax as much as they need to in order to provide basic services. Since the feds want states to provide a lot of services, that means tax money has to go from Washington to the states in order to pay for that. The only way around these cash transfers is to slash federal tax rates and allow states to increase theirs, thus returning to a more federalist system. But good luck with that.

  3. Gee, I wonder why people keep commenting on your empire fading?

    Yeah, but who cares what left wingers think? Hating America is in their bloodstream, so it’s like – Same Shit, Different Day.

  4. Since the feds want states to provide a lot of services, that means tax money has to go from Washington to the states in order to pay for that. The only way around these cash transfers is to slash federal tax rates and allow states to increase theirs

    Well, not entirely. an alternative is to have both the states and Feds spend less. How much of the junk funded by government is necessary, anyway? But thanks for an intelligently written comment, this being in noted contrast to the one right above yours.

  5. Well, not entirely. an alternative is to have both the states and Feds spend less. How much of the junk funded by government is necessary, anyway?

    This is actually an interesting framing. Most of the time we talk about what we can eliminate – we don’t usually start from zero and talk about what we have to keep. So let’s take a crack at it.

    I’ll say we definitely need the following: military, roads, schools, public safety (police, firefighters, justice system, etc.), social safety net. All but the military and aspects of the justice system can be provided on the state level. What’s your list? And for other liberals here, what do you think I’m missing?

  6. At the national level, food regulation. Banking regulation. Labor laws. Transportation regulation. Any of that provided or overseen at the state level? Labor laws, at least.

  7. If we’re going to the absolute minimum, international diplomacy and border control (both pass control and customs inspections). Airspace regulation. Consumer safety regulation – it’s far more efficient to handle this with per se regulations than to regulate it through tort lawsuits.

  8. Why has government undertaken different activities – usually historical lessons.

    And now “conservatives” want to ignore those lessons in favour of an ideology.

  9. ” … it’s far more efficient to handle this with per se regulations than to regulate it through tort lawsuits.”

    That’s the principle argument that has been used to justify the regulatory legal system we have now … that and the potential or posited venality, or even corruptness, of elements of the judiciary which were/are presumed to make common law legal appeals over contaminated water or nuisance or whatever, futile.

    In an ostensible effort to ensure equity and avoid violence while maximizing economic, not just legal efficiency, we wind up with the human termite heap, aka the therapeutic equity state.

    Regarding my reference to economic efficiency, one can also oddly enough, or perhaps not oddly at all, detect a distinct note of intellectual sympathy on the part of some left-wing proponents of business regulation for monopoly itself, or at least a form of gigantic-ism that supposedly provides efficiencies of scale and innovation thought to be unavailable in an unregulated market of medium sized competitors. Galbraith is an example of one who believed that continuing innovation could only be achieved in the future through large businesses, as anyone who was taught out of Campbell McConnell’s Economics knows. And as anyone knows who lived longer than Galbraith did, he was wrong.

    The United States government – the Clinton Administration particularly – itself has been responsible for encouraging violations of anti-trust principles when it imagined that doing so would mean better prices to the government for defense equipment.

  10. Shorter DNW: Big companies distorting capitalism are clearly a left-wing plot because of argle bargle glab.

  11. Shorter DNW: Big companies distorting capitalism are clearly a left-wing plot because of argle bargle glab.

    In other words, NZT, you yet again cannot argue against the logic and facts so you resort to your grade-school idiocy. Typical of you and your ilk. Jeff, on the other hand, debates with integrity and intellect.

  12. In other words, NZT, you yet again cannot argue against the logic and facts

    PB, you numbskull, I cannot argue against the “logic and facts” because there was no logic or facts in the post. Only DNW’s typically crappy opinion.

    God, you’re a twit at times.

  13. NZT, I have shown repeatedly you’re devoid of logic, incapable of debating without dishonesty, fallacy. And DNW’s comment was full of logic and fact.

    But like Dana said, your argumentation is commonly beneath the sewer.

  14. Jeff wrote:

    It’s tough to trust the former governor of a welfare state when she says that the feds have no business transferring money to the states. But going beyond that, I don’t buy that this is a good idea at all. Higher federal tax rates mean that states cannot tax as much as they need to in order to provide basic services. Since the feds want states to provide a lot of services, that means tax money has to go from Washington to the states in order to pay for that. The only way around these cash transfers is to slash federal tax rates and allow states to increase theirs, thus returning to a more federalist system. But good luck with that.

    Something I’ve said many times. An example I’ve given: The federal gasoline excise tax is 18.3¢ per gallon, and federal law requires that 90.5% of the revenue be spent in the state in which it was collected. Wouldn’t it make more sense to reduce the federal gasoline excise tax by 90.5%, so that the states have the room to raise their own fuel taxes? That keeps federal decision taking out of state projects, eliminates an additional layer of bureaucracy and reporting requirements, and allows more of the revenue collected to be spent on actual road projects rather than overhead.

    In my quarter-century in this business, I have been on jobsites with federal, state and local money all in the same project, with separate offices and inspectors for the feds, the state and the county. They, of course, had to report to separate offices in their own governments, so there were more bureaucrats behind them.

  15. Of course, the Congress was unable to get their appropriations work done on any of the twelve annual appropriations bills. That means that states and cities which were counting on what President Nixon called “revenue sharing” money for their projects are seeing their projects delayed because they are having to depend on lawmakers in Washington, or vendors unpaid because an already started project which had federal money promised didn’t get those federal dollars on time.

  16. NZT, I have shown repeatedly you’re devoid of logic, incapable of debating without dishonesty, fallacy.

    No, you assert it.

    Me, I go out and prove you are a liar. Which is why you resort to frothing rants.

  17. It’s tough to trust the former governor of a welfare state when she says that the feds have no business transferring money to the states.

    Don’t forget the fact that she’s a bona fide socialist.

  18. So China is busy building highways, busy building the world’s longest high-speed rail network, busy bringing broadband into rural areas, graduating 6.3 million university students annually, and doing its level best to haul tens of millions of peasants into the 21st century every year.

    And the US is letting bridges crumble, turning roads back into gravel to save money, cutting back on education – and giving tax cuts to the rich.

    Heh – as the song goes:

    Burning city, Babylon.
    Disguise us.
    Public enemy, in Babylon,
    guide us.
    To freedom within world.
    System virtue, all around.
    The world I see,
    in a TV box.
    [...]
    Light the lantern, moon and sky.
    I see your picture made by Edison.
    Reign of peace in the night…

  19. This is actually an interesting framing. Most of the time we talk about what we can eliminate – we don’t usually start from zero and talk about what we have to keep. So let’s take a crack at it.

    I’ll say we definitely need the following: military, roads, schools, public safety (police, firefighters, justice system, etc.), social safety net. All but the military and aspects of the justice system can be provided on the state level. What’s your list? And for other liberals here, what do you think I’m missing?

    That’s a sensible answer. I, too, would like to start from zero and then fund the Federal government for things that are truly necessary. In that vein, I would not fund the Depts. of Energy and Education, and probably Commerce and Labor as well, the latter being a matter for unions and business to resolve without the need for government interference.

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