Should the U.S. government pay state government expenses?
#1
As the Covid-19 crisis continues to deprive state governments of tax revenues, it becomes more and more inevitable that the states and local governments will begin shutting down services.

Naturally they'll cut the least essential services first, but it's not like there are a lot of cushy government jobs where people are supposed to stand around and do nothing. And, yes, I've seen lots of pictures of city and county employees standing around in the streets seeming to do nothing on taxpayers' money.

Let's assume the guys who are paid to sweat in the sun are let go first and not argue about whether they do essential work. New York Governor Andrew Cuomo calls out police, fire, and other emergency services that will soon run out of money.

When will this happen?

It varies by state. This op-ed on the National Review (LINK: A Federal Bailout Won’t Fix States’ Finances ) argues that some state governments have "rainy day funds" that will help them keep running for anywhere from a few weeks to more than a year.

But the writer, Kevin D. Williamson, suggests that states don't deserve federal money because of all the mistakes they have made in managing their finances. He zooms in on pension funds. Now, I don't want to put any pensioners out on the street but they're not providing police and fire services. So I think this problem has to be looked at from several different angles.

Vital services should be maintained, and if that means the federal government extends loans or something to the states to do that, then so be it.

The problem (in MY opinion) should not be condensed down to "the states should have managed their pension funds better so they don't deserve any money".

Deserve ain't got nothing to do with it.

The state governments certainly could be run better according to most people but arguing about how to fix their fiscal policies isn't going to keep emergency services working. These people are little putting their lives on the line every day of their jobs, and now they are being asked to expose themselves to potential virus carriers.

It seems to me that politicians and pundits need to curtail their constant bickering over fiscal policy and work together to ensure that vital government employees are not asked to do their jobs without pay.

The federal government has resources the state governments don't have. The state governments cannot replicate those resources on their own. The best they can do is raid their various prior year surplus funds (which many of them have but reserve for one-time capital expenditures and special projects) or divert their lottery revenues (not nearly as much as most people believe they are) to pay for vital services.

That probably won't be enough for most states and local governments. In fact, if that gave just the state governments a few months' operating costs I doubt it would help county and city governments at all.

Having the federal government loan money to the states would create a new political firestorm but there are other ways the federal government can help.

Most people are not aware of this but the U.S. government took over states' debts right after the war for independence. It was seen as a necessary action and it created the first national deficit.

Mitch McConnell's idea of allowing states to declare bankruptcy probably won't fly. But Congress may come up with other ways to help finance state government in the short term. They might authorize the states to issue special bonds to the federal government, for example. The federal reserve bank could loan money to the banks that handle state funds, and allow the states to borrow money from those banks.

I'm sure there are many things they can do.

And all of them will be politically unsavory to one or more segments in society. Anything that conservatives agree to may be opposed by progressives, and vice versa.

Whatever happens will be the result of compromise. But I certainly hope that Congress takes action and provides the states most in need with some assistance.

This isn't a time for petty lecturing on how to manage a budget. And, frankly, the federal government is the last entity in this country that should be delivering such lessons to state governments.
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#2
This could have been avoided with  planning.
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#3
I'm not sure how much planning could have gone into but but I agree that they waited much too long to think about doing anything. And here it is the middle of June and many state and local governments are still waiting for help.

I do believe that if the national and state governments had taken the virus more seriously in January they could have averted so many deaths. But I don't think the economic consequences could have been avoided.

Some of the states have built up surpluses over the past 10 years. But even those funds are expected to run out. The problem is that we shut down the economy and yet everyone still needed public services, to pay for food and health care, and other expenses.
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#4
There is absolutely a need for federal aid to the states for coronavirus related economic dislocation. The problem is how to properly target such aid to coronavirus related matters, rather than as a bailout for systemic bad choices unrelated to the coronavirus such as underfunded pensions.
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#5
(June 11th, 2020, 12:57 PM)Bacchus Wrote: There is absolutely a need for federal aid to the states for coronavirus related economic dislocation. The problem is how to properly target such aid to coronavirus related matters, rather than as a bailout for systemic bad choices unrelated to the coronavirus such as underfunded pensions.

I agree completely. Federal aid should not be used to wipe out decades of debt accumulated through terrible policy, or to fund future insane social programs that don't benefit citizens.
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#6
Me too.

If the states want federal aid to get them out of previous bad policy, I'd go for the federal govt. paying for one year's worth of salary for an economist from Harvard or Oxford to go to a state, rewrite their economic plan entirely, with the understanding that the state absolutely has to follow that advice, no questions asked and no changes or amendments.
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#7
Any aid the U.S. government gives to the states could be structured as a special type of debt, but I think historical practice is for the federal government to either take over state debt or to give the states blocks of money.

While everyone agrees there are problems with how governments manage their resources, there isn't much agreement on what is problematic. I don't think it will serve the public's interest to have Congress dither over which state government decisions were good and bad. They'll argue about such things along party lines, and that's a formula for deadlock and under-service.

Ultimately it's up to the voters to hold their state governments accountable for undesirable policies at the ballot box. The constitution doesn't give the federal government the right or the power to oversee how state budgets are managed. They either help or they don't. And I still hope Congress moves the money along.
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#8
(June 21st, 2020, 10:43 AM)Michael Wrote: Any aid the U.S. government gives to the states could be structured as a special type of debt, but I think historical practice is for the federal government to either take over state debt or to give the states blocks of money.

While everyone agrees there are problems with how governments manage their resources, there isn't much agreement on what is problematic. I don't think it will serve the public's interest to have Congress dither over which state government decisions were good and bad. They'll argue about such things along party lines, and that's a formula for deadlock and under-service.

...

The pension crises in the states (possibly in the federal, too) come from capping top salary that can be paid.  The states - trying to retain essential personnel, or just to sweeten employment - took to upping deferred income - pension plans, typically.  These have exploded, but the states haven't (mostly) put in the funds to keep current with actual payouts. Hence the pension crisis, mostly manufactured by the states themselves.

I don't now that federal government should step into that.  Possibly some kind of revolving loans to keep necessary services running - police, fire, ambulance, hospitals/health, maybe public schools.  After that, it gets kinda iffy.  It'll be a very hard sell, & likely entail a lot  of compromise & heated arguments - & probably take 4-6 months to work out - & that's assuming that the pandemic economic effects keep on for the duration.
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