The beauty, or curse, of a recession is that it exposes the fiscal irresponsibility of those living on borrowed money.
I reviewed four states, with information courtesy of www.mercatus.org, and the fiscal irresponsibility is astonishing. New York, New Jersey, California, and Illinois, none of the states ranked higher than 41 out of 50 states in fiscal health. The study done by the Mercatus Center was for a period of 10 years, from 2006 to 2016, and they issued their rankings in 2018.
These same states are currently asking the Federal government for a financial bailout using the Coronavirus as an excuse. Are they serious? These are the same governors who told President Trump he didn’t have the authority to tell them when to open their state economies. Under the Article X of the Constitution they are right, but the President could use the Commerce Clause to change that, but that’s a different discussion all together.
The bottom line is they can’t have it both ways, are they for Federalism all the way or none, it is that simple.
These governors are using the Coronavirus pandemic to ask the Federal government to “pay off” their state debts. In my opinion, this is in clear conflict with the tenets of the 10th amendment. Article X clearly defines Federalism which is the relationship between states and the Federal government.
The reality is these states were not ready for the Coronavirus pandemic or any other state emergency, despite the fact emergency preparedness it is the responsibility of each individual state or local jurisdiction. To blame the Trump administration for their lackluster response is short sided and wrong.
The Federal government stepped in and provided states with ventilators, masks, and Personal Protective Equipment. This equipment should have been already in the possesion of hospitals, but they were not ready and clinical directors care more about the bottom dollar than emergency readiness.
All of this at the expense of private companies like General Motors and 3M, who were told by the Federal government to drop their products in favor of producing medical equipment at a loss.
The federal government is not responsible for the emergency preparedness of states or local jurisdictions. The only time the Federal government is required to assist is in the event of a national emergency declaration, and it has to be approved by the President. Even then, states are to use the federal resources for the benefit of their citizens, not their state deficits and budgets.
Bailing out state governments is a bad idea. It will set a bad fiscal precedent and will encourage poorly managed state governments to continue with reckless spending and sky rocketing deficits.
From a constitutional stand point, it doesn’t make sense. I believe it would be in complete contradiction with Article X and the concept of Federalism.
Would states asking for this federal bailout be willing to give up their own sovereignty and accept the Federal government as their ruler? Only time will tell.
The following are the four states I reviewed and their fiscal health and rankings as of 2016. I only concentrated on long term liabilities, unfunded guaranteed pensions, and other post employment benefits.
41- New York
- Long Term Liabilities: 58% of total assets which is lower than the national average.
- Unfunded Guaranteed Pension Liabilities: $442.44 billion dollars or 35% of the state personal income. The National Average is $14.51 billion dollars.
- Other Post Employment Benefits: $88.50 billion dollars of 7% of state personal income.
42- California
- Long Term Liabilities: 92% of total assets which is higher than the national average.
- Unfunded Guaranteed Pension Liabilities: $1, 190.84 billion dollars or 54% of the state personal income. The National Average is $14.51 billion dollars.
- Other Post Employment Benefits: $106.06 billion dollars of 5% of state personal income.
48- New Jersey
- Long Term Liabilities: 388% of total assets which is higher than the national average.
- Unfunded Guaranteed Pension Liabilities: $272.54 billion dollars or 49% of state personal income. The National Average is $14.51 billion dollars.
- Other Post Employment Benefits: $85.42 billion dollars of 15% of state personal income.
50-Illinois
- Long Term Liabilities: 330% of total assets which is higher than the national average.
- Unfunded Guaranteed Pension Liabilities: $445.79 billion dollars or 67% of state personal income. The National Average is $14.51 billion dollars.
- Other Post Employment Benefits: $51.90 billion dollars of 8% of state personal income.
This is just a small sample of how states are running their jurisdictions with reckless disregard for tax payers. There are many other states that are in the same irresponsible boat, but these four are the major “town criers”.
At this very moment, Senate Leader McConnell and President Trump are considering giving states the bailout they are asking for, and I will tell them to stay resolute and say, no. This will only encourage more bad behavior and it will take the country into a recession and more debt.
As it is, I believe the country has already reached Stagflation as high inflation is almost unavoidable and high unemployment is already there.