Palmetto Promise Institute joined the Mackinac Center along with several other State Policy Network partners calling on Congress to not bailout state or local governments for budget issues not associated with the COVID-19 pandemic. You can read the letter below.
May 8, 2020
Dear Leader McConnell, Speaker Pelosi, and Minority leaders Schumer and McCarthy:
The undersigned organizations, members of the State Policy Network, would like to encourage you not to support any future state or local financial bailout that is not directly associated with the COVID-19 pandemic.
Some state lawmakers have used the COVID-19 pandemic as a reason to call upon Congress for help in grappling with fiscal problems that predate the COVID-19 pandemic. Federal lawmakers should refuse such requests. Relief efforts should primarily be about providing relief, not covering over profligate states’ self-inflicted fiscal harms.
As one example, state senators from Illinois have asked Congress for over $40 billion in support, including $10 billion to address their state employee pension systems, which are underfunded by over $100 billion. Other legislators and other governors may also want federal money to paper over problems that existed before the pandemic.
Bailing out states — especially for problems unrelated to the pandemic — is problematic for a few reasons. It rewards states for being fiscally irresponsible and it punishes lawmakers from other states that made hard choices and did the legislative heavy lifting that was necessary to fix fiscal problems themselves.
States have the tools to address their fiscal problems already. Rather than let pension liabilities continue to balloon out of control, Michigan, for example, began offering new state and school employees 401(k)-style benefits that prevent the kind of underfunding Illinois struggles with. It also increased contributions to pay for existing debts and now uses better assumptions about existing debts to prevent future underfunding. States can fix their own messes without federal support, which comes at the expense of residents elsewhere.
In addition, any bailout would also increase the already skyrocketing federal debt which must be serviced. If state lawmakers have fiscal problems that they are unwilling to address, they should ask Congress to help them lower their own expenses in an equitable way, rather than asking people from other states to fix their problems for them.
States should be allowed to solve their own problems. All still have policy tools to balance their own budgets without a bailout, and the lack of political will in states to address their problems should not be masked by federal transfers.