Mitch Daniels: No bailout for states drowning in debt
https://pilotonline.com/opinion/columnist/guest/article_aacb9e86-56b0-588a-b470-4808366182c2.html
IN 1787, WHEN the Constitutional Convention and an infant republic “hung by a thread,” two imaginative New Englanders solved the problem and saved the day. Roger Sherman and Oliver Ellsworth, both representing Connecticut, proposed a bicameral legislature made up of one house representing population and the other giving each state an equal voice.
The “Connecticut Compromise” — designed as a safeguard against the domination of smaller states by their more populous neighbors — entered history as perhaps the most crucial of all the bargains that enabled a new nation to be welded together out of the ramshackle Articles of Confederation.
But Connecticut — which today, along with a number of other states, faces a seemingly insurmountable budgetary crisis — might end up regretting the statesmanship of its illustrious forebears. Sherman and Ellsworth’s two-members-per-state system stands as a bulwark to prevent reckless states — Connecticut included — from raiding their more responsible brethren. Let’s thank them for their innovation.
Over the past few years, several of today’s 50 states have descended into unmanageable public indebtedness. In Illinois, vendors wait months to be paid by a state government that is $30 billion in debt and one notch above junk bond status. And in terms of per capita state debt, Connecticut ranks among the worst in the nation, with unfunded liabilities amounting to $22,700 per citizen.
Each profligate state is facing its own budgetary perdition for different reasons, but most share common factors. The explosion of Medicaid spending, even before Obamacare, has devoured state funds just as it and its entitlement cousins, Medicare and Social Security, have done at the federal level. This has crowded out other vital public activities, as striking teachers in most states experiencing such hardships know.
In parallel, public pensions of sometimes grotesque levels guarantee that the fiscal strangulation will soon get much worse. In California, some retired lifeguards are receiving more than $90,000 per year. A retired university president in Oregon received $76,000 per month — and no, that’s not a typo. California’s pension shortfall, $250 billion under the rosiest of assumptions, is more likely close to $1 trillion.
With things this far gone, even an aroused public or a sudden eruption of statesmanship is unlikely to prevent a crash. In some states, government unions have barricaded their benefit levels behind a Maginot Line of legal and even constitutional protections.
More and more desperate tax increases haven’t cured the problem; it’s possible that they are making it worse. When a state pursues boneheaded policies long enough, people and businesses get up and leave, taking tax dollars with them. We see this often in the headlines: GE leaves Connecticut, General Mills exits Illinois, Chevron and Waste Management flee California. But also watch the U-haul rental data: Illinois and California are first and second, respectively, in net rentals leaving vs. coming into the state.
Where is a destitute governor to turn? One day, we can anticipate pleas for nationalization of these obligations.
In fact, this balloon was already floated once, during the crunch of the most recent recession. In 2009, California politicians called for a “dynamic partnership” with the federal government. Money from other states, they said, would be an “investment” and certainly not a bailout. They didn’t succeed directly, although they walked away with $8 billion of federally borrowed “stimulus” money. Such a heist will be harder to justify in the absence of a national economic emergency.
Sometime in the next few years, we are likely to go through our own version of the recent euro-zone drama with, let’s say, Connecticut in the role of Greece and maybe a larger, “too big to fail” partner such as Illinois as Italy. Adding up the number of federal legislators from the 15 or 20 fiscally weakest states, one can count something close to half the votes in the House.
The Senate — thanks to Ellsworth and Sherman — will be our theft insurance. These statesmen could never have imagined governments as sprawling and expensive as those even today’s more cautious states operate. But had they somehow foreseen that their own beloved state would be among the worst offenders, one of those most likely to try to fob off its self-inflicted problems on its counterparts, I think they would only have felt better about their handiwork.
Mitch Daniels is president of Purdue University and a former governor of Indiana. He wrote this column for The Washington Post.
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(I'm finding it difficult to believe that the only
place I found this was on the Virginian Pilot web site. At any rate, here it is. Zim.)
Mad Poet Strikes Again.
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