Yesterday I read George Will’s column in the Journal Star (here’s the same article in the Washington Post), and then the New York Times editorial. They both happened to be on the same subject: States in crisis, with Illinois in the limelight.
The New York Times says the Feds should step in and give more money (emphasis added):
A state or city unable to make its bond payments would send harmful ripples through the financial system that could cause damage even to healthier governments. But if states act quickly to deal with their revenue losses and address their debt — and receive sufficient aid from Washington — there is still time to avoid a crisis.
…[F]ederal stimulus money — which has been keeping many states afloat — is largely scheduled to expire. Renewing a portion of that aid would be one of the most effective ways to assist the economy.
And they think states and cities should raise taxes on the rich — something they criticize the federal government for being unwilling to do.
In contrast, Will says the Feds shouldn’t give another penny to states or cities that have brought this all on themselves, unless they’re willing to reform.
San Francisco voters defeated Proposition B [which would have required city employees to contribute up to 10 percent of their salaries to their pension plans, and to pay half the health-care premiums of their dependents]. If they now experience a self-inflicted budgetary earthquake, there is no national obligation to ameliorate the disaster they, like many other cities and states, have chosen.
Furthermore, any existing aid they receive should come with strings attached, he says:
[Rep. Devin] Nunes’s bill [H.R. 6484] would require [states and municipal governments] to disclose the size of their pension liabilities – and the often-dreamy assumptions behind the calculations. Noncompliant governments would be ineligible for issuing bonds exempt from federal taxation. Furthermore, the bill would stipulate that state and local governments are entirely responsible for their pension obligations and the federal government will provide no bailouts.
Nunes’s bill would not traduce any state’s sovereignty: Each would retain the right not to comply, choosing to forfeit access to the federally subsidized borrowing that facilitated their slide into trouble.
Tough love, as it were. I’m more inclined to agree with Will. The problem with the New York Times’ solution is that it doesn’t do anything to deal with the root problem. In fact, it exacerbates it. Extending stimulus benefits to states and municipal governments without requiring any change in the way they operate will only help them slide into insolvency quicker and result in bigger losses. Will’s suggestion requires reform if federal benefits are to continue and mitigates losses to taxpayers and investors alike.