It’s not difficult to find bad policy examples from government-enacted lockdowns due to coronavirus, yet virtually none are worse than the idea of the federal government bailing out the states.
The latest proposal comes by way of the Heroes Act, a congressional spending proposal that includes $1 trillion in funds for state and local governments to essentially do as they please. A major problem with the legislation is it incentivizes unaccountability and bad behavior by states – potentially allowing the propping up of notoriously mismanaged pension funds and other budget pitfalls entirely unrelated to COVID-19.
“We feel a federal bailout of state budgets would be counterproductive – rewarding states that have made poor financial decisions at the expense of those who have been fiscally responsible,” declares a letter of signatories published by the American Legislative Exchange Council (ALEC).
Why should North Carolina’s taxpayers, who’ve elected legislators that have cut taxes and spending and built up a substantial rainy day fund, be called upon to bailout wealthy states like New York and California whose elected officials irresponsibly racked up billions in liabilities?
The entire scheme would be another transfer of wealth from the middle class to states where there are often much higher incomes and bloated government services. All the more problematic given that citizens are fleeing states that have refused to prioritize spending or offer a lower tax climate.
Writing specifically about the Cares Act, Mississippi Public Policy Center President and CEO Jon Pritchett makes the case that federal tax dollars or aid, if bailout legislation goes anywhere, should be in the hands of small businesses and entrepreneurs. They and their employees are the most brutalized by the government mandated shutdowns.
One of Pritchett’s overarching points is that private enterprise allocates resources more efficiently than the public sector. “If anyone doubts that rule applies in Mississippi, they only need to look at the way the Department of Human Services deployed resources it received from the federal government,” writes Pritchett. A state audit found, among other abuses, that over $1 million in taxpayer funds alone went to former NFL star Brett Favre for speeches and appearances that never happened.
The federal government has already pledged $500 billion in loans for states to meet the coronavirus crisis through the Federal Reserve’s Municipal Liquidity Facility (MLF).
Furthermore, the U.S. Debt already sits at over $25 trillion, which means $76,000 for every single citizen. Despite the ability to print money, it should pain Americans that the prospect of federal bailouts is even being considered for mismanaged and indebted state and local governments. Nobody mismanages funds like the federal government, and what does all the profligate spending and debt mean? Higher spending and debt lead to the kind of inflationary policies that threaten the savings and retirement plans of American citizens.
Perhaps most important in the entire discussion of state bailouts is America’s unique system of government. The point of the framers implementing our brand of federalism at the Constitutional Convention was to prevent the concentration of power and authority at the national level. After all, it was the states that created the federal government, not the other way around.
Instead of becoming even more dependent on federal power, states need to be working to implement spending restraints and detangling themselves from a broken and mismanaged centralized government in Washington D.C. In North Carolina, the Civitas Institute has led that charge with its “A Better Carolina” campaign that prioritizes responsible public spending while championing free market reforms and innovation.
Americans should be skeptical of state governors who appear to be prolonging lockdowns to hasten a bailout for decades of mismanaged budgets. Expanding government programs and power is a sure way to stifle economic recovery and growth. The solution is not throwing more money at the problem. The only real and lasting solution is solved by voters no longer willing to double down on failed policies that pile debt upon debt.
This article originally appeared in The Daily Reflector.
