Politics

federal mandates, government bailout
Rich Pedroncelli/AP
Gov. Arnold Schwarzenegger discusses his proposed 1.5 percent sales tax increase during
a news conference in Sacramento, Calif.

Cities, States Lining Up for Federal Bailout Funds

November 17, 2008 10:51 AM
by Emily Coakley
State and local governments are the latest to look for federal financial help, though critics blame some problems on lavish spending rather than the economy.

Governors Association Sounds Alarm

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Facing budget shortfalls, some states have gone to Washington for help, according to The Washington Post. The National Governors Association sent a letter to Congress “asking for immediate action to aid states.”

The Center on Budget Policy and Priorities last week released a report saying that “states are facing ‘a great fiscal crisis’ and their revenue projections are only weakening,” McClatchy Newspapers reported. Only nine states—Indiana, Texas, Wyoming, Alaska, North Dakota, Nebraska, South Dakota, West Virginia and Montana—aren’t facing budget shortfalls in the next two years, the report said.

Cities are also struggling, the Associated Press reported. Philadelphia, Atlanta and Phoenix have reportedly asked for a share of the federal “bailout bill” money allotted to financial institutions, known as TARP, or the Troubled Assets Relief Program.
Other mayors are watching what Congress does for the three cities. For example, San Jose’s mayor initially told the AP he’d ask for $14 billion for public transportation and other projects. In a statement, he said he wouldn’t request federal money, but would look for the city’s fair share if money became available for cities. San Jose isn’t running a deficit, but its leaders are concerned about what California’s state-level problems could mean for them.

McClatchy reported that on Friday, the U.S. Conference of Mayors came up with a “Main Street” stimulus package, “announcing that they’d identified 4,591 infrastructure projects that would cost $24.4 billion but would create more than a quarter of a million jobs in return.”

Governors and mayors seeking help aren’t calling it a bailout, though. The Post recounted a speech Schwarzenegger gave last week, in which he said the federal government only sends 80 cents to the state for every dollar California sends to Washington. He was quoted as saying, “So it’s not like we’re asking for a bailout, because it’s our money. We’re just saying, ‘Hey, give us some of our money back.’”

Opinion & Analysis: State’s problems ‘of their own making’

The Economist says many of local government’s problems are their own fault.

“Long before local governments had revenue problems, they had spending problems. They have guaranteed their employees lavish pensions and toughened criminal codes in such a way that prison populations have risen fast. Public spending in New York state has increased by more than 40% in the past five years; in California, general-fund expenditure has more than doubled since the mid-1990s.”

Others were more direct about what the federal government should do. “Let GM go bankrupt—and let the States in financial trouble go bankrupt. To put it politely as possible: screw ’em,” wrote Mark Noonan on the site Blogs for Victory, which used to be known as Blogs for Bush.
Mark Sanford, the Republican Governor of South Carolina, wrote in The Wall Street Journal that bailing out only some states wouldn’t be fair.

“Those that have been fiscally responsible will pay for or lose out to the big spenders. California increased spending 95% over the past 10 years (federal spending went up 71% over the same period). To bail out California now seems unfair to fiscally prudent states,” Sanford wrote.

Instead, he suggested that the federal government “free states from federal mandates. South Carolina will spend about $425 million next year meeting federal unfunded mandates. The increase in the minimum wage alone will cost the state $2.6 million and meeting Homeland Security’s REAL ID requirements will cost $8.9 million.”

Some have defended the states looking for help.

The federal government has more flexibility than states, says Iris Lav of the Center on Budget and Policy Priorities, who supports the idea of federal assistance for states. She told the Post, “How can a state cut that much? They can’t. The states have balanced-budget requirements—the federal government does not.”

The federal government can go into debt to meet its budget, but states can’t, because their constitutions usually require a balanced budget.

Background: World financial crisis

The last two months have seen world financial markets on a roller coaster; some countries came close to bankruptcy, banks were nationalized, and stock markets dropped, rallied, and then dropped again. Interest rates in many countries have been cut, and just this weekend, leaders from 20 nations met in Washington to address the global problem.

In the United States, a Treasury plan to help financial institutions has been criticized, and hit snags. Read findingDulcinea’s coverage of the crisis and its global impacts.
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