Another Federal Bailout

This article originally appeared in the Charlotte Observer on March 29, 2009.

If state government were a business, this bailout would be outrageous

The latest federal bailout is going to a business losing $200 million a month. It employs 275,000 and continues to hire, increase pay and build facilities. They recently decided to add close to a billion dollars in debt on top of $5.5 billion added in the past eight years. They face an estimated $29 billion in unfunded liability to pay health insurance costs for retirees.

The CFO just announced that the employee pension fund would require an additional $359 million over two years to keep it solvent, on top of the $400 million annual contribution.

They are withholding money owed to customers who were overcharged during 2008. They have a “cash flow” problem and are cleaning out accounts where they deposited funds.

In the face of overwhelming bad news, the CEO proposed a workforce reduction of just 0.5 percent. Most of the positions targeted for elimination are vacant, resulting in a workforce cut of around 0.1 percent.

The CEO used the corporate jet to travel to meetings with federal officials to plead for a bailout. And the jet flew highly compensated employees and their families to a basketball tournament.

But not to worry, the federal government is stepping in to bail them out to the tune of more than $6 billion. Is this one of the big 3 automakers, another failing bank or a financial firm?

No, it is North Carolina’s government. The bailout comes even though in 2009 the state proposed spending almost $300 more per citizen than it was spending in 2004.

This bailout will further exacerbate systemic problems affecting the N.C. budget. That includes a tax system in need of modernizing; a budgeting process that looks only at new expenditures, never at existing programs; and a bureaucracy rewarded for spending every penny.

Every few years, North Carolina experiences an economic slowdown (along with the nation) and a corresponding decrease in predicted tax collections. This time the predicted number was missed by a country mile because of rising unemployment, falling home values and a drop in business activity.

State government has followed the lead of the automakers: a huge workforce, benefits it can’t afford and a costly infrastructure not being maintained. It’s using a 20th century model to deliver 21st century services. The big difference is that automakers can’t force customers to buy their vehicles – the state can force citizens to pay ever higher taxes and fees.

Now the state is leading the nation in job loss and we have the nation’s 4th highest unemployment rate.

Families are responding to the recession by cutting spending and paying down debt. In the private sector, businesses are concentrating on profitable core functions to stay in business.

It’s not too late for North Carolina’s leaders to do the right thing – right size state government, realign taxes and regulation and reward investment and job creation so that down the road, we do not repeat history.