Obama’s second bailout unwise

Joshua Culling Government Affairs Manager, Americans for Tax Reform
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The lead story in Sunday’s Washington Post, Obama pleads for $50 billion in state, local aid, confirms what we’ve been expecting for some time. The Obama Administration will continue to push for more bailout money to fill state budget holes created by rampant overspending and budget gimmicks. Not only will this measure increase the staggering federal deficit by $80 billion, it will allow frivolous appropriators at the state level to continue to ignore the structural problems in state budgets.

One of the first signs that state governments would continue to look to D.C. to solve their self-imposed crises in early January, when California Gov. Arnold Schwarzenegger proposed a state budget that included $6.9 billion in one-time federal money, a number that the governor pulled out of thin air. This was a clear indication of the terrible precedent set by last year’s stimulus package: that states would remain unaccountable for their own fiscal recklessness. With a president and Congress so enamored with the power the federal government, “emergency” bailouts are now the norm.

The beggar culture has infiltrated state governments across the country. OH Gov. Ted Strickland wants another $750 million. New York Gov. David Paterson assumes a yet-unpromised $1 billion Medicaid bailout. Michigan Gov. Jennifer Granholm, who has presided over a one-state recession through the entirety of her time in office, assumed $722 million in federal money in her latest budget proposal.

The list goes on. Simply put, once President Obama opened the floodgates of federal cash, state governments began to consider themselves off the hook for the unsustainable obligations they had promised to public employee unions in previous years. They no longer found it necessary to cut back on the automatic funding increases for state agencies. Heaven forbid governors like liberal Republican Sonny Perdue actually force a review of agency spending from dollar one every few years.

This is more than just an outrage from a personal responsibility standpoint. It is tightening the grip of the federal government over autonomous states, allowing Washington, D.C. to dictate the terms under which states negotiate contracts, fund infrastructure improvements, and compensate employees. Unions that elected the President and his Democratic majority in Congress are ensuring that maintenance of effort requirements force states to continue funding frivolous construction projects even after federal money dries up. Nanny staters are using debt-financed federal cash to lobby for higher taxes on food, alcohol and tobacco at the state level. Teachers are employing their empty “think of the children” mantra to secure automatic wage, benefit and pension increases that states cannot afford.

Artificially propping up state budgets to “weather the crisis” is a failed strategy that allows elected officials to ignore necessary spending reforms. The economic downturn has proven that the government growth of the past few decades is unsustainable. States must reform public pensions by switching from defined benefit to defined contribution plans, raising retirement ages, outlawing double-dipping, and bringing public sector wage growth back to reality. They need to use the “yellow pages test” to sell off state services that can be more efficiently performed by private business. State appropriators must be subject to more transparency and public oversight, and be forced to justify spending from the first dollar.

Instead of pursuing commonsense reforms, the Obama Administration insists on talking out of both sides of its mouth. On one hand, throwing more money at state governments is the answer to all problems; on the other, the federal government’s deficit problem must be confronted.

In terms of federal public policy, the president’s utter disinterest in reining in spending proves the point we have been making for months: The newly-created debt commission is nothing more than a vehicle for massive tax increases. Any proposed mixture of spending cuts and tax hikes will follow the same failed model of the deficit efforts of the 1980s and 1990s. All of the tax increases will take effect, and none of the spending reductions will.

Joshua Culling is state affairs manager at Americans for Tax Reform, which fights for lower, flatter and fairer taxes. He coordinates ATR’s advocacy efforts in 17 states.