Inkwell readers may remember a certain cheapskate-me-who shuddered at the thought of Congress coming back early from recess to spend some more money. Speaker Pelosi is determined to bail out states that have, not to put too fine a point on it, lived way beyond their means.
With the House set to pass a $26 billion bill to bail out these states, Dick Morris is a man after my own cheap heart:
Federal Band-Aids won’t cover the fiscal problems of such states as New York, California, Michigan and Connecticut forever. State bankruptcy and fundamental restructuring of state and local finance — and labor relations — is at hand.Take Connecticut. In the current fiscal year, $2 billion in federal subsidies have helped tide it over the recession — a hefty share of its $15 billion budget. But these infusions are one-shot grants, renewed only if Congress acts affirmatively to do so. Other states depend on similar manifestations of federal largess.
Instead of meekly voting to spend more money on these states, Republicans will point to belt-tightening states such as New Jersey and Virginia. Should a miracle occur and the profligate states not get a bail out, they’ll start threatening to close schools and fire departments (the spendthrift state’s version of widows and orphans).
The short-term outcomes of not bailing out the states are ugly, including bond markets demanding higher rates or refusing to lend to California. But the long-term outcomes are good. Morris writes:
[B]eyond this tale of woe lies a golden opportunity to reform state governments and redress the imbalance of power between elected officials and public-employee unions.
Absent endless federal subsidies, states will simply no longer be able to afford to give the unions everything that they want. And governors — many of them newly elected Republicans — will realize that they can’t even afford to honor agreements their big-spending predecessors OK’d.
The GOP Congress should then amend the federal bankruptcy law to provide for a way — now absent — for states to declare bankruptcy. (Municipalities can do so under current law, but states have no such relief.)
Here’s the key: The reforms must require that states abrogate their public-employee union agreements in the bankruptcy process, just as private corporations like Delta and Chrysler have done. The wage hikes, the work rules, the pension plans all go out the window.
Few states will have the starch to cut benefits for those now receiving them. But most will cut pensions for current workers and all will slice them for future employees. Even the threat will be a powerful bargaining tool.
And beyond the fiscal adjustments, the power of the municipal- and public-employee unions will be broken.