Coronavirus Chronicles: States Want Bailout for Past Profligate Spending

Coronavirus Chronicles: States Want Bailout for Past Profligate Spending

Even as House members consider themselves non-essential workers (they’ve decided to vote from home), it hasn’t stopped some lawmakers from coming up with bad ideas for the next stimulus package, including relief for states and municipalities with pre-existing economic conditions.

In California, Gov. Gavin Newsom announced last week at his daily coronavirus press conference that the revised budget that he will unveil today will show that California is facing an estimated $54.3 billion budget deficit – the highest ever projected in the state’s history. This is far higher than the $35 billion the legislative analyst presented to lawmakers only a month ago.

The federal government has already doled out billions to state and local governments to shore up their finances during the coronavirus crisis: $150 billion to state governments for the public health emergency, $45 billion in disaster relief aid, $30 billion for local educational agencies and institutions, $25 billion for mass transit, and much more.  In addition, the Federal Reserve is essentially printing money to buy short-term municipal bonds in large quantities. While it’s a loan, if cities fail to pay the money back, the costs are ultimately borne by taxpayers nationwide.

All this federal assistance should have been enough to help states on the pandemic, but governors and local officials also want help to plug their looming deficits.

“Just calm down,” Speaker Nancy Pelosi told CNN’s Jake Tapper, “We will have state and local, and we will have it in a very significant way.” But she did admit that impatience has its advantages “Their (state governors) impatience will help us get an even bigger number.” Pelosi’s ask? $3 trillion, including $540 billion for the states and $375 billion for local governments.

As we’ve chronicled many times in Right by the Bay, blue state politicians are under relentless pressure to enact policies that favor cash-rich public unions and other special interests.  When New York Governor Andrew Cuomo recently deferred a 2 percent pay increase for essential state workers until the summer due to the coronavirus crisis in his state — a $50 million savings — he was excoriated by union leaders.  Before the coronavirus outbreak, the state was already facing a $6 billion deficit, it’s now estimated to be in the range of $10 to $15 billion.

In Illinois – the state that has the worst pension crisis in the nation — Democratic legislators, in a letter obtained by The New York Times, hatched a plan to get the federal government to provide the state nearly $42 billion in “relief” funds, $10 billion of which would go directly to Illinois’ public sector employee unions. This prompted Senate Leader Mitch McConnell’s now widely reported comment in an interview by Hugh Hewitt: “You know, we’ll certainly insist that anything we’d borrow to send down to the states is not spent on solving problems that they created for themselves over the years with their pension programs.”

In California, Governor Newsom agrees with Pelosi’s nearly $1 trillion bailout.  In a state where policy priorities have gone to benefit public unions (including saving generous pensions), climate change programs, and social justice, the Governor and his administration will be Zooming non-stop to the White House and the U.S. Treasury to help preserve as much of his original budget.

But in fact, some of Newsom’s  budget priorities are already superseded by current events.  For example, extra pay to encourage teachers to work at low income school districts should be substituted for extra pay for the best online teachers who can teach kids anywhere, any place. Subsidies for pre-school programs are no longer necessary with social distancing mandates and most parents already staying at home.  Money for a mystery park can surely be put off now that state parks have distancing restrictions.  As for boosting climate change programs – there’s no better time than now to enact free-market energy policies (see Wayne Winegarden’s PRI study Legislating Energy Poverty) that would help drive down the cost of energy for millions of unemployed Californians.  Finally, his plan to give illegal immigrants $500 each at a total cost of $75 million is now being challenged in the courts.

In 2009, the federal government transferred $149 billion to states to help close their budget deficits. Now, Pelosi and Newsom are proposing more than six times that amount.  But before we expect the nation to bail out California, or Sacramento to raise our taxes, the state can do a lot more to tighten its belt.

Rowena Itchon is Vice President of the Pacific Research Institute

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.