NCPA - National Center for Policy Analysis


March 11, 2009

While the rosy fiscal times enjoyed by the states have clearly disappeared, important questions need to be addressed before rubber stamping a multi-billion dollar bailout of the states, says Jonathan Williams, fiscal policy director with the American Legislative Exchange Council.

For example:

  • What caused the current budget problems in the states? 
  • Should the federal government spend taxpayer dollars to bail out the states in this economic downturn?

Roughly 41 states faced budget deficits for fiscal year 2009 or are projecting deficits for 2010; analysts are even projecting a cumulative deficit of $97 billion for the states during that period.  But this is not because states don't tax enough -- the real problem is too much spending, says Williams:

  • State spending has grown at an unsustainable rate over the past decade.
  • State spending is up 124 percent over where it was just 10 years ago while state debt increased by 95 percent during the same period.
  • In many cases, the states facing the worst fiscal climates are the very same states that engaged in reckless spending.

Moreover, there is another reason why state officials should be worried about a federal bailout: when has the federal government ever given money to the states without countless strings attached?  State budgets have faced financial duress many times before because of overspending and history suggests federal bailouts are not the answer as they decrease state sovereignty, incentivize future fiscal irresponsibility and reward fiscally imprudent states at the expense of fiscally responsible states.

Unfortunately, the "do something" disease will continue to plague Washington.  If this results in spending additional taxpayer dollars to rescue states who mismanaged taxpayer dollars in the first place, it will only spiral them into a cycle of federal dependency, further encouraging fiscal irresponsibility, says Williams.

Source: Jonathan Williams, "Will Taxpayers Be Forced to Subsidize Fiscally Irresponsible States?" In "13 Questions That Advocates of Free Markets and Limited Government Should Be Asking," The Insider, Winter 2009.

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