Bailouts Reward Bad Behavior

December 6, 2010 at 9:15pm

Do insolvent states actually believe other states should bail them out?  In June 2009, I was invited to introduce Michael Reagan at an event in Anchorage. In my remarks as Governor of Alaska, I warned against President Obama’s debt-ridden stimulus bill and its effect on all our state budgets. I believed that the bill’s benefits would be limited because government would grow exponentially, and I warned that the package was equivalent to a federal bribe with fat strings attached that created new unfunded mandates for state governments. At the time, most state legislatures, including Alaska’s, chose to ignore that warning. I predicted that states like California would soon be coming to the federal government asking for a bailout.  After I gave that speech, I remember the mocking I received for predicting California and other big government states would continue to spend recklessly and yet expect others to bail them out. The naysayers in the media went a bit wild in their condemnation of my sounding that alarm.

 

Well, fast forward to today. We now know that the nearly trillion dollar stimulus package didn’t lead to the job growth promised by President Obama; instead it left already struggling state governments even deeper in debt because now they are on the hook to continue programs and projects that were started by these “free” federal funds. So now, as predicted, folks in Washington and in over-spending state capitols are whispering the dreaded “b-word”: bailouts – for individual states!

 

American taxpayers should not be expected to bail out wasteful state governments. Fiscally liberal states spent years running away from the hard decisions that could have put their finances on a more solid footing. Now they expect taxpayers from other states to bail them out, which will allow them to postpone the tough decisions they should have made ages ago and continue spending like there’s no tomorrow. Most Americans would say these states have made their bed and now they’ve got to lie in it. They accepted federal dollars and did not voice opposition to the unfunded federal mandates, and they even re-elected politicians who foisted debt-ridden programs on them that could never be sustained.

 

Instead of coming to D.C. cap in hand asking for more “free” money, they should follow the example of their more prudent sister states and take the necessary steps to sort out their own finances. They must start by reforming their insolvent pension systems. Many states have multi-billion dollar unfunded pension liability problems that they have refused to address for many years.  They’ve deferred their spending problems, assuming the problem deferred would be an issue avoided; instead, it’s resulted in a crisis invited.  These states still won’t reform their costly defined benefit systems for fear of offending the powerful public sector unions. Sooner or later, their pension systems will collapse unless they do what states like Alaska did, which is to swap unsustainable defined benefits, which are more like glorified Ponzi schemes, for a more prudent defined contributions system.

 

My home state made the switch from defined benefits to a defined contribution system, and as governor, I introduced a number of measures to build on that successful transition, while also addressing the issue of the remaining funding shortfall by prioritizing budgets to wrap our financial arms around this too-long ignored debt problem. When my state ran a surplus because we incentivized businesses, I didn’t spend it on fun and glamorous pet projects for lawmakers – though that would have made me quite popular with the earmark crowd. In fact, I vetoed more excessive spending than any governor in our state’s history, and I used the state’s surplus to bring our financial house in order by paying down our unfunded pension plans that some other governors wanted to ignore. This fiscal prudence didn’t make me popular with the state legislature. In addition to vetoing hundreds of millions of dollars in wasteful spending, I put billions of dollars into savings accounts for future rainy days, much like most American families do in responsibly planning for the future. I also enacted a hiring freeze and brought the education budget under control through a commitment to forward-funding. I returned much of the surplus back to the people (it was their money to start with!) through tax relief and energy rebates. I had proven as the mayor of the fastest growing city in the state that tax cuts incentivize business growth, and though the state legislature overrode some of my veto cuts and thwarted an additional tax relief request of mine, the public was supportive of efforts to rein in its government.

 

It’s one thing to veto spending and reduce the size of government when your state is broke. I did it when my state was flush with revenue from a surplus – though I had to fight politicians who wanted to spend like there was no tomorrow. It’s not easy to tell people no and make them act fiscally responsible and cut spending when the money is rolling in and your state is only 50 years shy of being a territory and everyone is yelling at you to spend while the money is there to build. My point is, if I could fight this fight in Alaska at a time of surplus, then other governors can and should be able to do the same at a time when their states are facing bankruptcy and postponing this fight is no longer an option.

 

So, let’s not continue to reward irresponsible political behavior. Instead of handing out more federal dollars, let’s give the governors of these debt-ridden states some free advice. Shake off the pressure from public sector unions to cave on this issue. Put up with the full page newspaper attack ads, the hate-filled rhetoric, and the other union strong arm tactics that I, too, had to put up with while fighting those who don’t believe a state needs to live within its means. Stand up to the special interests that are bankrupting your states. You may not be elected Miss Congeniality for fighting to get your fiscal houses in order; but in the long run, the people who hired you to do the right thing will appreciate your prudence and fiscal conservatism.

 

As Michael Reagan’s dad once said, “We hear much of special interest groups. Well, our concern must be for a special interest group that has been too long neglected…. ‘We the people’…” The people deserve leaders who will make the tough decisions to secure the future prosperity of their states.

 

- Sarah Palin