The Coming Catastrophe: State Governments
By DICK MORRIS & EILEEN MCGANN
Published on DickMorris.com on August 5, 2010
As Congress reconvenes next week to pass a $26 billion bailout of state
and local governments entombed in their own deficits, we witness a
foretaste of the crisis that will be the central event of the first half
of next year: the collapse of state governments.
As long as the Democrats control Congress, they will continue to
rubber-stamp Obama's requests for bailouts of profligate states. But
when the Republicans take control, they will be less than forthcoming.
Republicans will ask the central question: Why should taxpayers from
states that have cut their budgets and observed spending restraint, pay
for the extravagances of the other states? Why should forty-seven states
have to pay for California, New York, and Michigan?
State government employment has risen by 16 percent since 1995 and
overly generous Medicaid and other spending has climbed alongside it.
Pension obligations, initially incurred as a cheap alternative to pay
raises for public workers, are increasingly driving state budgets over
the brink.
State and local governments and school boards are hostages to the public
employee labor unions that control their finances through their
contracts and their politics with their donations and votes. These
nominally democratic government bodies are as much under the sway of
their union captors as the auto companies are of the UAW.
When a Republican Congress turns off the spigot of federal bailouts, the
municipal and state bond markets are going to take the hint and stop
buying state paper at any interest rate. California will find its debt
has become unmarketable and will come begging Congress for relief. First
it will seek federal money and then its demands will escalate into a
federal guarantee of its state debt.
The Greek financial crisis will come to our shores in the form of state
bankruptcies.
Hopefully, Republicans will not be so weak-kneed as they are in the face
of the current shortfall and next week's demand for aid. With two
Senators caving in, the Democrats were able to pass their aid bill and
send it to the House next week.
The Republican solution to state financial distress should be simple:
The Party should insist on a change in the federal bankruptcy law
providing for a procedure for state bankruptcy (none now exists). This
process must call for abrogation of all state and local public employee
union contracts as is usually done in private sector bankruptcies. By
freeing states and local governments (including school boards) of their
union obligations on wages, work rules, staffing, and pensions, they
have a chance to survive and, indeed, to prosper. But merely subsidizing
these massive expenditures just prolongs the misery of the states in
question.
The collapse of overspending state governments must trigger the
diminution of the power unions hold over their budgets and their
politics. Their coming bankruptcies offer an opportunity for reform and
the Republican Congress - backed by newly elected Republican state
governments - give us precisely the opportunity we need to effectuate
it.
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