Lawmakers Oppose Federal Bailout for States

WASHINGTON — The new Republican-led House is showing no appetite for making federal taxpayers help state and local governments cope with widespread budget problems. Even some Democrats are wary, underscoring the impact of Washington's crushing budget deficits.

For the coming fiscal year, the 50 states face combined expected deficits of $125 billion, according to the liberal Center on Budget and Policy Priorities. Unlike the federal government, nearly all states are required by their constitutions to balance their budgets. Now, the GOP is spearheading an effort to vilify government workers and create a pathway for state bankruptcies. "The era of the bailout is over," Rep. Patrick McHenry, R-N.C., told a House hearing on the debt problems facing scores of states and municipalities around the country.

At the same hearing, Rep. Mike Quigley, D-Ill., said states need to erase their deficits and face up to their long-term obligations such as pensions for government workers on their own. He also criticized a proposal some conservatives have made that Congress pass a law allowing states to reorganize their debts by declaring bankruptcy, an idea that opponents say would send state borrowing costs soaring.

"I don't think either one of those options can work or are optimal," Quigley said.

McHenry chairs a subcommittee of the House Oversight and Government Reform Committee that oversees federal bailouts, which was holding a hearing on the issue. Quigley is the top Democrat on that panel.

House Majority Leader Eric Cantor, R-Va., has also said there will be no federal bailout for fiscally ailing states.

Washington has pumped billions of dollars to state and local governments during the past two years from President Barack Obama's $814 billion economic stimulus program. But that aid is ending, and states and municipalities face huge projected deficits for this year and next.

For the coming fiscal year, the 50 states face combined expected deficits of $125 billion, according to the liberal Center on Budget and Policy Priorities. Unlike the federal government, nearly all states are required by their constitutions to balance their budgets.

Despite bipartisan agreement that Washington's budget problems mean that governors can't expect help from federal taxpayers, the two parties used the hearing to blame different culprits for the states' problems.

Republicans said the stimulus program let states postpone making their budgets healthier and cited state workers' pensions and health benefits. Democrats said the stimulus let states preserve valuable services and defended public employees, and said most states' budget imbalances are largely due to the huge bite that the weak economy took out of tax collections.

Citing worries that state workers could see their pensions cut, Rep. Elijah Cummings, D-Md., said, "One of my concerns is when the storm is over, then these folks have been locked out of a lot of money they were due."

McHenry blamed the wide-ranging budget problems chiefly on states' huge pension obligations, citing "the looming burden of paying out trillions of dollars in lucrative public sector union pension and health care benefits that come at the expense of taxpayers."

He said public employees on average have better salaries and benefits than private workers and said, "Public sector employees and private sector employees are living in two different economies."

He also blamed excessive spending and falling tax revenues caused by the economic downturn, adding, "Reckless spending fueled by bottomless borrowing and guaranteed by endless bailouts is an unsustainable course."

Quigley, the Democrat, said long-term budget imbalances are faced by only six to eight states, including his own state of Illinois. He said those states face major problems caused by rising health care costs and underfinanced pension plans.

"This is why a one-size-fits-all approach, like bankruptcy for states, could do more harm than good," Quigley said.

Besides Illinois, some other states facing especially tough budget problems include New York, New Jersey, California and Texas.