10.01.2008 0

The Next Big Bailout

  • On: 10/31/2008 11:01:30
  • In: Economy
  • By Robert Romano

    You read it here first. As ALG News predicted, the next big bailout will be the several states, coming on bended knee to Congress to help them pay for their budget deficits.

    So reports the New York Times’ Jeremy Peters:

    “Governors David A. Paterson of New York and Jon S. Corzine of New Jersey added their voices Wednesday to the growing support for a second federal economic stimulus package, saying state governments would face devastating cutbacks if they did not receive assistance soon.”

    In particular, Governor Paterson has warned that New York State is facing a budget deficit over the next three and a half years of $47 billion. He firmly believes “that if it took only two weeks for the federal government to find $700 billion to bail out Wall Street and bank executives, then we ought to be able to find a fraction of that amount to help preserve essential services at the state level.”

    Governor Corzine warned that the “federal government ignores state and local governments at serious peril.”

    For our part, we warned that this would happen if there wasn’t explicit prohibition against it.

    The fact is that state government spending during the 1990’s and 2000’s has grown too high, too fast. If past budgets were being passed under the assumption that property taxes and other revenue would continue to rise, then not only was that mistaken, it was foolish. Investors on Wall Street made similar bets, became overleveraged, and now are taking a serious haircuts.

    Now these very same governments that have made more election year promises than can be paid for during dire economic times want the federal government to just borrow and/or print more money to pay for those deficits. This is the makings of a new entitlement program: a state entitlement program.

    New York and New Jersey—and any other state government that attempts to get a federal bailout—are simply trying to get around their balanced budget requirements by creating a new federal welfare program.

    They want taxpayers in other states that can balance their budgets to pay for the budget deficits of the states that cannot.

    Talk about redistribution of wealth! That’s just plain wrong. And it must not stand.

    States must make fiscally responsible decisions, even if the federal government does not. If Congress cannot put its foot down here, the bailouts will never end. State governments will always spend beyond their means.

    Robert Romano is the Editor of ALG News Bureau.

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