The Daily Caller

The Daily Caller

The great state bailout swindle

Photo of Howard Anglin
Howard Anglin
Contributor

When it comes to federal spending, it easy to become numb to numbers: $180,000,000,000 to AIG; $150,000,000,000 to Fannie and Freddie; and now $26,100,000,000 to bailout the states (on top of an earlier $53,600,000,000 state education bailout described an “historic,” “temporary” and “one-time appropriation” way back . . . in 2009).  All those zeros start to run together pretty quickly.  And when the federal government is running a year-to-date deficit of $1.2 trillion, isn’t another $26.1 billion practically a rounding error?  Horrifyingly, yes.  But the latest state bailout is a particularly flagitious swindle that deserves your attention.

Fundamentally, the notion of states seeking a handout from the federal government is a constitutional perversion.  We are not dealing here with private corporations or citizens, but sovereign states with the authority to raise revenue (through taxing and borrowing) and the power – nay, duty – to control the way that revenue is spent.  If a state faces a budget shortfall, it is a self-inflicted problem and its government has no right to shake down the citizens of neighboring states to redress its improvidence.

Imagine that your neighbor leased a Ferrari, wore bespoke Milanese suits and used 25 Year Old Macallan as mouthwash.  Then one day, after losing his job, he strolls over to your house and asks you to pay half his credit card bill.  You would be forgiven for shutting the door in his face (frankly, you’d be forgiven much worse).  Now imagine he comes round with the local constabulary and they demand that you pay his tab.

That’s the state bailout if you are a citizen of Montana, North Dakota or one of the other states that bothered to keep clean fiscal house.

Worse, the bailout actually singles out one state for punishment precisely because that state took sensible steps to protect its budget.  In 2009, Texas committed an unpardonable affront to the ghost of Keynes by using its share of the federal education bailout to create a rainy-day fund against future financial crises instead of increasing spending.

In response, Congress has included a provision in the new bailout that requires the governor of Texas to provide “assurance” that Texas will not reduce spending on education in the next three years.  As the education budget is set by the Texas legislature and not the Statehouse, this is a promise the governor is constitutionally prohibited from making.  As a result, Texas may be forced to forgo its $800 million share of the bailout.

Meanwhile, as even the Washington Post has noticed, the bailout provides the rest of the states with additional education funds whether they need it or not.  Maryland, for example, which has no plans to lay off teachers for the coming school year, receives a $179 million windfall to spend on hiring more teachers or raising existing teacher salaries.  In other words, Texas is punished for past prudence, while Maryland is bribed to increase public spending.  Is it any wonder we are in an economic crisis?

On a technical level, the bailout is a budgetary fraud.  Under the terms of PAYGO – the (mostly theoretical) requirement that new federal spending be paid for out of existing funds – Congress was obliged to identify cuts in other federal programs to finance its largesse.  In this case, Congress “paid” for the bill by “rescinding” amounts previously allocated to defense programs and food stamps.

  • brianjconway

    Lost in the house of mirrors is the fact that the federal government is the creation of the states, not the other way around. The fundamental wrong about the states having to go to the federal government for a bailout is that the federal government should only have the money on hand to perform those tasks assigned it by the constitution written by the states. That the states have need to go to the federal government for financial aid is indicative of two things. One: The Feds, through a progressive income tax never indexed downward to account for inflation, now takes a monstrous bite of personal income. Some of that, had the rates been indexed down sufficiently, would have left some room for additional state taxes where needed, on a state by state basis, where it could be spent where it would do the most good. Two: having to go to the Federal government for a bailout may also be indicative of too high a spending level on the part of individual states.
    We have to get back to consitutional law in this country.

    Brian Conway
    Kinderhook, N. Y.

  • sandra3dee

    “Congress has included a provision in the new bailout that requires the governor of Texas to provide “assurance” that Texas will not reduce spending on education in the next three years”

    Is this even legal? The provisions in these “stimulus” bills to change state law should be criminal! The feds are no better than the corner check cashing cartel.

    • libertyatstake

      Well, it definitely turns the founding principle of federalism on its head, now, doesn’t it? Asking if it’s “legal” is like asking if exploiting a loophole in the tax code is “legal.” Maybe, if you find the right judge, but if they are willing to do it, you know where they stand, don’t you?

      http://libertyatstake.blogspot.com/
      “Because the Only Good Progressive is a Failed Progressive”

  • libertyatstake

    “…the bailout provides the rest of the states with additional education funds whether they need it or not…”

    That’s The Plan. Serfdom. Road Toward.

    http://libertyatstake.blogspot.com/
    “Because the Only Good Progressive is a Failed Progressive”