Congress needs to pass, and the president needs to sign, a bill pre-emptively prohibiting any federal bailouts of overspending states.
In Europe, some countries have patiently bankrolled Greece and others – without much regard for whether the recipients were worthy, responsible, intelligent risks. Or whether it was fair for thrifty, hard-working nations to be subsidizing fat benefits and padded pensions in other countries.
The same could happen here.
As the states are run differently, and feature varying economic
climates for businesses, it’s inevitable that some states will be in better shape than others. Would it be fair, or even wise, for responsibly-run states to be asked to bail out irresponsible ones?
“There will not be a federal bailout of the states,” House Majority Leader Eric Cantor said as early as January 2011.
Let’s hope he can make good on his word. But if a state hits the wall financially – California is facing a $16 billion deficit, and is hoping it can tax the rich to save itself – the sob stories will hit CNN, and there will be a lot of emotional pressure on Congress to act.
Some have called for a special “state bankruptcy” bill to smooth the way for troubled states. We’d be against anything that encouraged continued irresponsibility. But anything that builds a firewall around a melted-down state and prevents bailouts is worth considering.
States have governors and legislatures that are elected to lead them down a sustainable path. If they fail, they ought to live with the consequences. They sure as heck shouldn’t be able to tax the citizens of other states to pay for their incompetence or weakness.
Yet, Washington has stepped in before – although it turned down California’s request for $8 billion a few years ago.
The pressure on Washington is only likely to increase, as more states come to a day of reckoning with the unsustainability of their public employee benefits and other spending.
Sen. Jim DeMint of South Carolina and Rep. Kevin Brady of Texas co-wrote an op-ed in the Wall Street Journal Tuesday titled “Say no to state bailouts,” in which they explained: “Years of overly optimistic growth projections, underfunding and overpromising by politicians have rendered many of these public pension systems effective toxic assets on states’ books. Some jurisdictions around the U.S. already spend more money on retired workers than on current employees, and more on retired teachers than on existing students and schools.”
Other policies that drive away business investment will leave such states in even worse shape.
“It is becoming clear,” the two wrote, “that the only way to force recalcitrant states to put fiscal reform on the table is for Congress to take state bailouts off of it.”
The message needs to be: Get your own house in order. Don’t come knocking on ours.