The Return of Uncle Sugar

The Senate is charging hard to send federal cash back to the states to help them balance their red ink-stained budgets. This would, of course, violate every notion of fiscal discipline ever entertained by man.

The feds, unrestrained by a balanced-budget requirement, would tax dollars away from the public, take a cut, and route the money back to the states with essentially no strings attached. It's an emergency, you see. Attention governors: You're nuts to sweat balancing your budget when you can always get a sweet bailout.

The White House isn't saying no which, in an election year, simply means "One lump or two?"

Comments

[PoliBlogger]

The states made their own messes, and should have to clean them up. The main problem is not that the economy slowed down, but that when the economy was hot states pretended like it would never slow down again (which it always does) and spent like crazy.

[Anonymous]

http://online.wsj.com/article_email/0,,SB105131224015163100,00.html

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Stephanie proposes that the Federal Reserve purchase municipal bonds. That approach would combine the best, she maintains, of monetary and fiscal policy, while nicely avoiding the risk of offending foreign investors, since munis, whose big attraction is their tax benefits, appeal almost exclusively to domestic investors.

By monetizing munis, Stephanie argues, the Fed could thus achieve its goal of reflating without scaring muni buyers away.

If anything, it might be a draw for the muni crowd, making the Fed's job all that easier. The beauty of her proposal is that it would help both the states and Uncle Sam without giving the public more of the hair of the dog that bit it.

Or, to use her more elegant locution, without invoking the "standard formula of plying consumers with credit as a means of achieving our economic ends," which inevitably "creates further imbalances while encouraging reckless financial behavior."

Sure, she concedes, monetizing municipal debt carries its own moral hazards. But such hazards are limited by the fact that states must balance their budgets, effectively putting a ceiling on their borrowing.

And Stephanie also is aware that "in an ideal world, the economy and the markets would be allowed to sort out these imbalances without the interference of meddling policy makers."

But an ideal world this isn't, and given that Washington "has every intention of rolling up its sleeves and making a good mess of things," her alternative strikes us as more than a little intriguing.

[Tuning Spork]

All the state legislatures needed to do was grow their budgets according to inflation rather than to their boom era revenues and they'd be swimming in surpluses.

State gvt departments and bureaus and commissions are like any corporate departments; rule #1 spend every dollar in your budget so you can demand more, 'cause if you don't yer budget will be cut, Dog forbid.

The Dept. Heads need to be told "you will get no increase in your budget this year -- deal with it or be replaced."

Connecticut's budget is a basket case. We have the highest number of State employees per capita because the Executive Depts and Legislature grow the budget at 18% a year, and then wonder why they have a deficit when the economy slows down. What a bunch of fuck-ups (pardon my Freedom).

[Rick Barton]

So, basically they are proposing having two layers of government extract a "handeling charge" before money winds up where the states intended! Get on the phone or e-mail to your congress person and senators and tell them you don't want the federal government making your state government any more fiscally irresponsible then it already is.

[Douglas Fletcher]

Hello from Arizona. The Governor here recently made a comment about this state's budget crisis, in which she essentially said that "when a family finds that it has lost a source of income, the reasonable thing for the family to do is to borrow money until the source of income is restored."

Well, to me that sounds like a family that's going to have money trouble for a long time. Maybe they'd be better off cutting spending and selling a few things, and taking whatever work they can find?

The states are in financial trouble because they have been practicing unsound fiscal policy. Borrowing from the Feds isn't going to help. People need to elect Governors who are willing to knock a few heads around and make the states live within their means.

Or maybe we could borrow some money from Cuba.

[Lefty]

The Right has done everything it can to undermine state and local authority to govern; that is, help provide a quality of life for its citizens equal to or better than other industrialized nations.

Longer sentences for drug offenses, three strikes laws and mandatory minimum sentences were enacted with no means to pay for them, leading to Corrections departments being the biggest chunk of most state budgets. Charter school and voucher bills were enacted that drain money away from public schools. At the same time the schools are mandated to take on handicapped students that nobody else will whilst enacting mindless, standardized testing that goes as far as the eye can see. Infant mortality in the U.S. is about the same as in Croatia. More government strangulation is in the works in the form of huge tax cuts that will squeeze the states even more.

The effects on state and local budgets and the more unfortunate of our citizens were predictable and gleefully awaited.

[pills]

Lefty,

I'll take "more governement strangulation ... in the form of tax cuts" any day. That's the kind of strangulation that I could grow to like.

[howdt]

perhaps it is time to point out that nannie government doesn't work. Why do we need a federal department of eduation? In fact - why isn't the mission of the EPA to fix the problems rather than exasperate them by fining everyone in sight? Oh - more revenues for the federal govt.

[Mr. Stinker]

"The Right has done everything it can to undermine state and local authority to govern; >>that is, help provide a quality of life for its citizens equal to or better than other industrialized nations.

[Tuning Spork]

Doug Fletch, wow! Your governor sounds really fiscally responsible (sic). The interest on public debt is only a further drain on the budgets. Either raise taxes (bad idea in a slow-growth economy, IMHO), lower spending (good idea in a slow-growth economy, IMAO), or some combination of each. Wanting to borrow to cover expenses -- and thinking that it's "the reasonable thing to do" -- is a sure sign that the powers-that-be-clueless are unfit for public office (IMHO).

[Jillsy]

Don't forget that many state expenditures are federally mandated, though.

[Lefty]

Well, Stinker, I think your ideal country just opened up for business - Iraq. No taxes, no regulation, no social security, low/no paid bureaucrats, crumby schools and hospitals and guns for everybody.

Libertarian nirvana!

[Mr. Stinker]

Lefty, then I suppose Cuba is your nivana. But liberty is based on rule of law and a tradition, I see little of this in Iraq currently. Perhaps in a few decades Iraq will be an idea country.

[joe]

Howard Dean did it right. During the 1990s, he worked to significantly increase state expenditures on one-time capital projects. This mean that the budget could be significantly cut without imperling services, that capital spending could be significantly cut, because there were a lot fewer projects waiting to be done, and that maintainence budgets could be cut, because the infrastructure was in better condition, and could last for a while without repairs.

Now that's fiscal responsibility! Conservatives look at taxes the same way pacifist look at war - they wish they would just go away by fiat, but are seldom willing to do the smart things that could actually make them less common.

[Douglas Fletcher]

Could you name a few of these "one-time capital projects?"

[joe]

Doug,

No, I can't. I'm repeating what I've read elsewhere. I can't vouch for the efficacy of the policy's implementation, just the soundness of its general direction.