3 Reasons Why States Shouldn’t Get a Congressional Bailout

From The Daily Signal.com (April 19):

Illinois State Senate President Don Harmon sent a letter April 14 on behalf of the Illinois Senate Democratic Caucus to members of Congress requesting $40 billion in federal funds for the beleaguered state.

Although the letter comes under the guise of unprecedented COVID-19 disruptions, the purposes for which Illinois and other states seek additional federal funds are anything but unprecedented. Opening the floodgates to federal taxpayer dollars to cover states’ self-imposed fiscal woes would only lead to even further fiscal recklessness.

Here are three ways that additional federal funds to states won’t help fight COVID-19 and will likely hurt federal taxpayers and states’ budgets in the long-run.

1. Congress already provided enough COVID-19 relief—states want unfettered funds. The Illinois letter makes clear that the state doesn’t need any more money to combat COVID-19. And, given the possibility that states are having to devise new spending related to COVID-19 just in order to use up the $150 billion they’ve already received, it’s clear that states have enough funds to combat the virus.

States have already received an unprecedented amount of federal funding, including both direct and indirect support.

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2. The money would reward decades of reckless mismanagement, including bailing out unfunded pensions. COVID-19 measures have been in place now for about five weeks, but states’ unfunded pension systems—the driving force behind states’ fiscal woes—are closer to five decades in the making.

Across the U.S., state and local governments have promised at least $5 trillion more in pension and other post-employment benefits than they’ve set aside to pay.

The Illinois’ letter requested $10 billion for its insolvent pension system—an amount that would cover one year’s worth of the state’s pension costs, or about five years’ worth of the shortfall between what the state is required to contribute and what it has actually contributed.

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3. The federal buck won’t stop here. First was tens of billions to cover states’ increased Medicaid and other social safety net program costs, and then over $200 billion in direct funding and up to $500 billion in short-term loans.

After the third bill—the CARES Act—was passed, there were requests for an additional $150 billion in unrestricted aid to states, a request from governors for $500 billion, and Illinois’ separate request for $40 billion.

If Congress were to fulfill Illinois’ request and provide the same amount on a per-capita basis to the rest of the U.S. states, the price tag would top $1 trillion, with New York receiving $61 billion, Texas $92 billion, and California $125 billion. [read more]