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Wednesday, December 10, 2008

A bailout of states would hurt New Hampshire and America


With the bailout frenzy in full swing, governors have now bellied up to the bar and are asking the new President to turn on the printing press one more time and flood the states with billions of dollars. The irony of having a profligate and deficit-ridden federal government help fix state budget deficits shouldn't be lost on any of us. But for smaller states, this is certain to be a bad deal. Our smaller and more frugal piglets will be pushed away from the federal trough by the prize-winning hogs from the larger, free-spending states.

After Washington spent hundreds of billions of dollars on bankers, insurance companies, auto companies and whoever else, state governors lined up for a bit of federal welfare. At the National Governors Association meeting, the governors asked President-elect Obama to sign them up and please bail out the states.

To be fair, President Bush has done much of the heavy lifting. He's successfully rebranded the federal government as George's Bailout and Backstop Agency -- you snooze, we lose. The feds have now abandoned any pretensions toward balanced budgets or anything approaching fiscal responsibility.

Balanced Budget Amendment? That's the old GOP. The new GOP is all about credit card spending. Surpluses? A quaint relic of the Clinton administration. Yet, despite federal dismissals of fiscal responsibility as archaic, they feel nostalgic about states being required to balance their budgets so they want to help.

Soon-to-be President Obama has agreed to assemble a spending package to help states. The price tag will be hundreds of billions. News reports talk about $136 billion of "shovel ready" spending projects -- roads, bridges and the like -- that are to begin construction almost immediately.

Here's where the politics begin. The federal government could take construction money, which is collected from all across the country, and dole it out equally to each state. Divide $150 billion among 300 million people and each state would receive about a half billion per million people -- $650 million in New Hampshire. That's about twice the size of our highway trust fund.

Equal distribution would amount to revenue sharing. No pork, no politically motivated winners and losers. States that overspent and ran up bigger deficits wouldn't get rewarded with more than their share. Frugal states could bank the money and spend it sensibly over time.

But that sort of politically neutral aid is unlikely to happen. According to The New York Times this week, "Mr. Obama's plan, if enacted, would be in part a government-directed industrial policy, with lawmakers and administration officials picking winners and losers among private projects and raining large amounts of taxpayer money on them."

Concern about Washington picking winners and losers is one of the reasons Gov. Mark Sanford of South Carolina wrote an op-ed titled "Please Don't Bail Out My State." Sanford doesn't want bad behavior rewarded.

As an example, he points out that small, community banks with lending standards are fine, but big banks that made bad decisions are being sent billions. A state bailout will likely be the same. Big states with lots of votes will receive billions at the expense of smaller states that took care of their finances.

Money will be collected from taxpayers all across the country and sent to states that spent money they didn't have. In essence, money will be transferred from well-managed states to poorly managed ones. If any sort of bailout is to go through, bad management must not be rewarded. States that managed themselves well should not be punished.

Secondly, Washington should not pick winners and losers. The whole point of a federal system is to let people in Nebraska decide what's best for Nebraska, not transfer that decision to a Washington bureaucracy. If you must send money to a state, let the people in that state decide what the best use of that money is.

Finally, consider just cancelling the whole thing. The federal budget isn't balanced. The Bush legacy is massive federal debt. Any additional spending is deficit spending. The federal government doesn't have the money, but it will borrow it to help balance state budgets. The governors don't want their states to have to borrow money or cut spending, so they ask the federal government to borrow money and cut spending.

A state bailout is a bad deal for federal taxpayers (all of us), bad for small states with less political power and bad for well managed states.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.

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