Feds must help troubled states now or face worse problems ahead

Feds must help troubled states now or face worse problems ahead

Posted: Friday, February 18, 2011

In the best of times, the federal government shouldn’t ever consider bailing out profligate state governments whose unwise spending has pushed them into an economic black hole.

Unfortunately, these are not the best of times; in fact they may be the most egregious days that any American under the age of 75 or so can remember.

The United States currently is suffering its worst economy since the Great Depression decade of the 1930s — 9 percent of Americans are officially unemployed and, if you include the underemployed and all those who have given up looking for work, the real number tops 20 percent.

As a result, states like California, New York and Illinois that provided generous social services and hordes of civil servants to run them, now find themselves facing catastrophic budget deficits for the coming fiscal year.

California alone will hemorrhage $28 billion in red ink over the next 18 months — almost one-third of the amount it spent in 2010. Arizona is now running a $1.2 billion deficit. Various obligations to fund programs not of its own making have put Illinois into a $15 billion shortfall. That amounts to 45 percent of its current budget and constitutes a burden no state could carry.

All told, 44 states and the District of Columbia are estimating budget deficits running about $125 billion according to the Center of Budget and Priorities, an economic research group in the nation’s capital.

It is inevitable that the failure of so many state governments would cripple America’s already snail-paced recovery and plunge the entire country into a prolonged depression with baleful effects on the rest of the world.

In this worsening situation, the federal government simply cannot stand by and watch an avalanche of financial disasters — each with the impact of Hurricane Katrina or the BP oil spill.

Sadly, there’s little indication Republicans or Democrats are ready to do what must be done to help the states avoid catastrophe. The new Republican-controlled House of Representatives is focused on cutting $100 billion from the proposed budget and President Obama has countered with severe cuts of his own.

What’s more, Obama has ignored the issue altogether and sent a clear signal he is not about to change his mind when he pointedly failed to mention this menacing problem in his recent State of the Union address.

It is likely this omission has already made a bad situation worse — and his budget proposal to cut billions of dollars in funding for programs like Community Development Block Grants and the Low Income Home Energy Assistance Program spell more misery for people already scraping the bottom of the barrel..

Doing nothing to help the troubled states eventually will cost the federal government more than the cost of alleviating the crisis now. Without help from Washington, the states undoubtedly will be forced to trim tens of thousands of public employees, eliminate financial aid for college students, end vocational rehabilitation for the disabled and scale back already bare-bone Medicaid reimbursement rates by 10 percent or more.

The crisis has engendered some low-cost solutions by innovative thinkers outside the federal bureaucracy. Christopher Edley, the dean of the law school at the University of California at Berkeley, has proposed that hard-up states be allowed to take advances on some of the federal funds they’re due in future years. Others have suggested that the federal government simply give the state some of the hundreds of millions of dollars that were left unspent from Obama’s first stimulus program.

In the near-term, the solution may be something as simple as federal and state budget leaders sitting down together to harmonize their approaches to spending cuts in ways that would cause the least damage to their citizens.

And one thing is beyond dispute: It’s time to get on with the task.

• Kipling is a Canadian columnist based in Washington, D.C.



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