Tuesday, November 18, 2008

States want their own federal financial bailout

States want their own federal financial bailout

Rob Hotakainen

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Led by California with a $28 billion hole in its budget, 41 states are in financial trouble, and many of their leaders are looking to Congress to bail them out.

State officials are hoping to join the ranks of the financial industry and auto manufacturers, who've found a sympathetic ear on Capitol Hill. They've found some key supporters: House Speaker Nancy Pelosi and other top Democrats are promoting aid to states as part of a broad stimulus package that could inject more than $300 billion into the ailing economy.

The idea is getting a strong bipartisan push from governors across the country, with California Republican Gov. Arnold Schwarzenegger and New York Democratic Gov. David Paterson among the chief proponents. Both are blaming Washington for their states' mounting troubles.

Testifying at a recent House of Representatives hearing, Paterson said that New York was "at the epicenter of a national emergency" after federal oversight bodies "utterly failed in their duty" to protect Americans' savings and the U.S. financial system. Speaking Wednesday before a Chamber of Commerce group in Fresno, Calif., Schwarzenegger said that "government is really at fault" and that Washington was obligated to "get us out of this mess."

One could argue that the federal government isn't in much better fiscal shape, with a $10.6 trillion debt that's been growing by nearly $4 billion a day for the past year. Unlike the states, however, Congress doesn't have to bother balancing its books.

Critics say that it makes no sense to shift expenses from one unit of government to another.

"While state governments fund different functions than the federal government, there is no distinction on who pays the bill: the taxpayer," California Republican Rep. Kevin McCarthy said. He added, however: "It is no surprise that states are looking for a bailout after Congress approved a $700 billion bailout for Wall Street."

Compared with such a huge price tag, many state officials regard their requests for help as minimal.

California Assembly Speaker Karen Bass said Congress should view states "as deserving of help as much as banks and automakers and everyone else in line for funds." If Congress can give $700 billion to financial institutions, she asked: "Can we have $5 (billion) or $6 (billion)?"

"We can't let one of the world's largest economies go over the cliff," she said in California.

Pelosi has been urging passage of a stimulus package for months. In September, the House passed a $61 billion stimulus that included aid to states to help them pay for Medicaid costs, emergency food assistance, more spending on infrastructure and an extension of unemployment benefits. The stimulus stalled in the Senate, however. Since the House vote, Pelosi said, the economic crisis has worsened and "the need for more (money) has grown."

House Minority Leader John Boehner, R-Ohio, charged that the $300 billion bailout would be "aimed at social and pork-barrel programs" that would hurt small business owners and families.

"Our path to economic recovery is not more tax-and-spend government programs that spread the wealth."

In a report released last week, the Center on Budget and Policy Priorities says that 41 states are facing budget shortfalls either this year, next year or both. The report says that states are facing "a great fiscal crisis" and their revenue projections are only weakening. Half of them already have cut spending, used their financial reserves or raised taxes to balance their budgets, according to the report. The only states that managed to stay off the list are Texas, Alaska, Montana, Wyoming, North Dakota, South Dakota, Nebraska, Indiana and West Virginia.

Paterson, testifying before the House Ways and Means Committee, said the states now were projecting a combined shortfall of $100 billion for their fiscal 2010 budgets. In New York alone, he said, more than 160,000 workers are expected to lose their jobs next year, pushing the state's unemployment rate to 6.5 percent.

"States need direct and immediate fiscal relief to help close their massive budget deficits," Paterson said.

Paterson said the state of New York has been "shortchanged for years when it comes to aid from Washington," noting that last year the state sent nearly $87 billion more to the federal government in taxes than it received in return.

Schwarzenegger made a similar argument to the chamber group, saying that Washington is sending "only 80 cents on the dollar" back to Californians.

"So it's not like we are asking for a bailout, because it's our money," he said. "We're just saying, 'Hey, give us some of our money back.' "

Not all governors are on board.

At the House hearing, South Carolina Gov. Mark Sanford said states had increased their spending by 124 percent over the last 10 years and that a bailout by the federal government would only exacerbate the trend.

"There seems to be no consequence, and indeed a reward, for unsustainable spending growth by states," he said. He suggested that Congress remove restrictions on how states spend federal money "to simply give the states more freedom," predicting that would ease their financial troubles.

Many Democrats want Congress to include infrastructure projects as part of a stimulus package.

That's also what the U.S. Conference of Mayors wants to do. On Friday, the mayors suggested 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.

After bailing out Wall Street, "it is now time for an investment in local economies that will produce a guaranteed return of jobs," said the U.S. Conference of Mayors' president, Miami Mayor Manny Diaz.

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