In 1787, when the Constitutional Convention and an infant republic “hung by a thread,” two imaginative New Englanders solved the problem and saved the day. Roger Sherman and Oliver Ellsworth, both representing Connecticut, proposed a bicameral legislature made up of one house representing population and the other giving each state an equal voice. The “Connecticut Compromise” — designed as a safeguard against the domination of smaller states by the more populous neighbors — entered history as perhaps the most crucial of all the bargains that enabled a new nation to be welded together out of the ramshackle Articles of Confederation.
But Connecticut, which today, along with a number of other states, faces a seemingly insurmountable budgetary crisis, may end up regretting the statesmanship of its illustrious forebears. Sherman and Ellsworth’s two-members-per-state system stands as a bulwark to prevent reckless states — Connecticut included — from raiding their more responsible brethren. Let’s thank them for their innovation.
Over the past few years, several of today’s 50 states have descended into unmanageable public indebtedness. In Illinois, vendors wait months to be paid by a state government that is $30 billion in debt and one notch above junk bond status. And in terms of per capita state debt, Connecticut ranks among the worst in the nation, with unfunded liabilities amounting to $22,700 per citizen.
Each profligate state is facing its own budgetary perdition for different reasons, but most share common factors. The explosion of Medicaid spending, even before Obamacare, has devoured state funds just as it and its entitlement cousins, Medicare and Social Security, have done at the federal level. This has crowded out other vital public activities, as striking teachers in most states experiencing such hardships know.
In parallel, public pensions of sometimes grotesque levels guarantee that the fiscal strangulation will soon get much worse. In California, some retired lifeguards are receiving more than $90,000 per year. A retired university president in Oregon received $76,000 per month — and no, that’s not a typo. These are the modern-day welfare queens, and they are the reason for some of the nation’s worst budget crises. California’s pension shortfall, $250 billion under the rosiest of assumptions, is more likely close to $1 trillion.
With things this far gone, even an aroused public or a sudden eruption of statesmanship is unlikely to prevent a crash. In some states, government unions have barricaded their benefit levels behind a Maginot Line of legal and even constitutional protections.
More and more desperate tax increases haven’t cured the problem; it’s possible that they are making it worse. When a state pursues boneheaded policies long enough, people and businesses get up and leave, taking tax dollars with them. We see this often in the headlines: GE leaves Connecticut, General Mills exits Illinois, Chevron and Waste Management flee California. But also watch the U-Haul rental data: Illinois and California are first and second , respectively, in net rentals leaving vs. coming into the state.
So where is a destitute governor to turn? Sooner or later, we can anticipate pleas for nationalization of these impossible obligations. Get ready for the siren sounds of sophistry, in arguments for subsidy of the poor by the prudent.
In fact, this balloon was already floated once, during the crunch of the recent recession. In 2009, California politicians called for a “dynamic partnership” with the federal government. Money from other states, they said, would be an “investment” and certainly not a bailout. They didn’t succeed directly, although they walked away with $8 billion of federally borrowed “stimulus” money. Such a heist will be harder to justify in the absence of a national economic emergency.
In the blizzard of euphemisms, one can expect a clever argument might appear, likening the bailout to another important compromise of the founding period: the assumption of state debts by the new federal government. But that won’t wash. Those were debts incurred in a battle for survival and independence common to all 13 colonies, not an attempt to socialize away the consequences of individual states’ multi-decade spending sprees.
Sometime in the next few years, we are likely to go through our own version of the recent euro-zone drama with, let’s say, Connecticut in the role of Greece and maybe a larger, “too big to fail” partner such as Illinois as Italy. Adding up the number of federal legislators from the 15 or 20 fiscally weakest states, one can count something close to half the votes in the House.
The Senate — thanks to Ellsworth and Sherman — will be our theft insurance. These statesmen could never have imagined governments as sprawling and expensive as those even today’s more cautious states operate. But had they somehow foreseen that their own beloved state would be among the worst offenders, one of those most likely to try to fob off its self-inflicted problems on its counterparts, I think they would only have felt better about their handiwork.
Michael J. Boskin, John H. Cochrane, John F. Cogan, George P. Shultz and John B. Taylor: A debt crisis is on the horizon
Katrina vanden Heuvel: Americans are drowning in student-loan debt. The U.S. should forgive all of it.
Martin Neil Baily, Jason Furman, Alan B. Krueger, Laura D’Andrea Tyson and Janet L. Yellen: A debt crisis is coming. But don’t blame entitlements.