Now, many states are fiscally prudent and have been for decades. But plenty of others are not, and the pandemic that will certainly claim more than 50,000 American lives — and which has tanked the U.S. economy — has also utterly exposed those states’ precarious finances.
Look at how many people various states employ. California state and local governments employ more than 883,000 people and Texas 563,000. California’s population is around 40 million, Texas’s just under 30 million. That looks sort of proportional, doesn’t it?
New York, by contrast, has 623,000 employees on public payrolls and a population of under 20 million. That jars. How to compare the states? Use the metric of public employees per 10,000 in population. California’s number is 228, Texas’s is 209 and New York’s a whopping 316 government workers for every 10,000 people in the state.
The size of state and local government workforces is just a starting point, however. Management of the revenue and quality of the governance matters an enormous amount.
Everyone knows that Illinois is grievously mismanaged, frequently led by the criminally corrupt in recent decades. Four of its last 11 governors have ended up in prison.
But Connecticut is a particularly egregious spendthrift that escapes national notoriety. It shouldn’t. The Yankee Institute for Public Policy is the fiscal watchdog of the Nutmeg State, and I turned to it for particulars that illustrate why states should not be considered as equals when they seek U.S. taxpayers’ money for relief.
More than 50 percent of Connecticut’s annual budget consists of fixed costs, meaning that for every dollar the state collects in tax, half of it is already spoken for. Decades of mismanagement have resulted in vast costs for Medicaid payments, public pensions and retiree health care, which is controlled by a contract between the state of Connecticut and its umbrella union organization.
This year, Connecticut will spend $5.48 billion on pensions and health care for retired state employees and teachers and debt payments, while spending only $4 billion on helping the poor.
Now, with the massive economic shock brought on by the virus, Connecticut will see much less revenue, but its fixed costs won’t change — they keep rising at the same rate.
“Connecticut has been captured by a powerful special interest — government unions — which have been using one-sided labor contracts to effectively hold our state hostage,” Carol Platt Liebau, the president of the institute, wrote to me in an email, adding, “Bankruptcy would force a reckoning by making the unions come to terms with Connecticut’s desperate fiscal reality.”
Which brings us back to the Senate majority leader. McConnell said no to demands for a bailout of states as Congress moved to replenish the Paycheck Protection Program over the past two weeks, and President Trump backed him up. House Speaker Nancy Pelosi (D-Calif.) and Senate Minority Leader Charles E. Schumer (D-N.Y.) tried to hold U.S. small businesses hostage in order to protect state budgets (and state employees), but blinked as pressure built.
There is no reason that fiscally prudent states should bail out fiscally profligate ones. Some states, such as Arizona, Florida, Ohio and Texas, have worked for decades to keep government lean and their states friendly to business. They shouldn’t be lumped in with states that have behaved recklessly for a generation.
The crisis has ripped the mask off of the states that have used up their proverbial seed corn. And their panic about the possibility of declaring bankruptcy is exaggerated.
I lived a long time in Orange County in California, home to the first major municipal bankruptcy of modern times. It was unpleasant. But it wasn’t the end of the world. The county’s bankruptcy allowed for some restructuring, and it wasn’t even that fundamental. Several municipalities, including Detroit, have since undergone the same painful fiscal surgery using the same legal authorities.
Now the states have to come to a reckoning with their actual means, and those means have been savaged by the economic stall-out. If federal taxpayers are going to foot a national bill, then national reforms — such as curbs on budget-wrecking public-pension payments — have to accompany that bailout.
Getting to a comprehensive package of rescue, relief and reform of the states would be a daunting challenge. A coalition of the brilliant would be required, in an echo of the gathering that drew up the U.S. Constitution in 1787, but, fortunately, far more diverse in its makeup and far more powerful in its provisions.
A historic agreement is required, but one that attaches strings of varying length and thickness to different states. Negotiations would be complicated. The deal would be best drafted in secret, then debated publicly once it takes a fixed form. But starting now would be smart, with “must haves” announced at the beginning.
If McConnell and Pelosi, the governors and the president send teams of rivals into the bargaining room — and if the participants can keep their mouths shut and their minds open — a deal can be done. The country urgently needs it.