The case for Washington bailing out some states
By Rob Cox and Richard Beales
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
NEW YORK — The newly-installed governors of Illinois, California, New York and Connecticut face huge budget gaps that are worrying financial markets. In extremis, federal government rescues might be called for. Breakingviews imagines how these Democrat governors from traditionally left-leaning states might justify a plea for help from the U.S. Congress.
Dear Esteemed Members of the 112th Congress:
Like many of you, the four of us have been elected with strong mandates. The voters of Illinois, California, New York and Connecticut have asked us to rectify past mistakes and set sustainable paths for the future. While we are Democrats and most of you are Republicans, we share your wish to address our financial challenges.
Over the next few weeks, we will take difficult decisions, requiring sacrifices from the people of our great states, to balance our budgets — as we are legally required to do. Our progress matters to the nation. Together, our four states account for about a quarter of America’s GDP and about the same proportion of its population. We plan to sort out our own problems. But let’s not forget that we have also, in less strained times, been among the most generous members of this great union in subsidizing weaker states.
In the 20 years leading up to 2005, the latest year for which the non-partisan Tax Foundation has crunched numbers, people and businesses in our four states have consistently paid more in taxes to Washington than the federal government has spent here. Less prosperous states have benefited from the reverse situation.
It adds up to a lot, too. Combined, we’ve paid nearly $500 billion more to Uncle Sam than successive administrations and your predecessors have chosen to return – and that’s before factoring in inflation. Believe it or not, tiny Connecticut paid a third of that, the highest proportion of the four. We don’t object: we know that when we are doing well it’s part of our national tradition and character to share some of the fruits for the greater good. It’s a lesson the European Union seems yet to have fully understood.
But the shoe is now on the other foot. And even if we completely fail to address our problems for ourselves — which is highly unlikely — our short-term needs would amount to only a fraction of what we have handed to other states in the past. Our signatory from the Land of Lincoln, Pat Quinn, is grappling with the annual $13 billion deficit he inherited. That seems a tiny amount compared with our historical generosity — not to mention the $700 billion turned over to wealthy bankers a couple of years back or the easy money policies of the Fed that benefited rich bond investors like Bill Gross, who has been badmouthing Illinois’ creditworthiness.
Our colleague in Albany, Andrew Cuomo, has to prepare the Empire State’s budget by Feb. 1. It looks as if New York’s $10 billion deficit today could nearly double to $17 billion in a couple of years if left unchecked. We’ve run his PowerPoint projections over our own states and feel his pain.
Indeed, though Connecticut may be the smallest member of our quartet, the state’s near $4 billion deficit looms larger than even California and New York’s relative to the state’s total budget. Dan Malloy’s showdown with the general assembly on Feb. 16 could be particularly tough — again for the sake of less than 1 percent of what we collectively handed to less fortunate states in the 20 years to 2005.
Meanwhile more of our efforts to solve our own money problems — dare we suggest, with greater discipline than seen at the federal level to date — will become clear when the second-timer among us, Jerry Brown, unveils California’s budget this week, something he’s been toiling away on from the statehouse in Sacramento. Even his annual deficit of more than $20 billion pales beside the money we’ve given away to other states — or rather, your august institution has given away on our behalf.
As we, along with the new Congress, tackle difficult fiscal challenges in the face of unrelenting market pressures, we felt it was our duty to our respective voters to recall our past selflessness. The federal government has transferred a lot of our states’ hard-earned wealth to those less fortunate in the past; you and your Washington advisers shouldn’t dismiss out of hand the possibility of a shift of cash in the other direction if one or more of us ends up having to ask you for help.
Edmund G. Brown, Jr.
Andrew M. Cuomo
Dannel P. Malloy
(Disclosure: The authors happily pay Connecticut and New York taxes)