States Still Demand Federal Help

When it comes to government spending, it always takes more federal legislation to stop legislation that has created spending, spending that could cause all of our taxes and borrowing costs to go up.

Now, the fear is if the U.S. Congress doesn't enact fiscal austerity, the bond vigilantes will do it for the U.S., the biggest bond vigilante being China, which already seems to be rotating quietly out of U.S. Treasurys. At the same time, China is agitating behind the scenes to replace the U.S. dollar as the world's reserve currency with a basket of currencies overseen by the International Monetary Fund, that basket known as "strategic drawing rights," where the U.S. dollar would get second class citizen status.

President Barack Obama's new $3.73 trillion fiscal 2011 budget indicates a record budget deficit of $1.65 trillion for the current budget year. That's the biggest ever in history. Meanwhile, the credit rating agencies have been threatening to cut the U.S.'s vaunted Triple-A rating, which the country has held since 1917. You don't have to endure liver failure to cure alcoholism, as one pundit put it.

The president proposes just $33 billion in spending cuts. That's like trying to stop a freight train with a bag of feathers.

And all this government spending doesn't take into account the cost of the bailouts of Fannie Mae and Freddie Mac, of Wall Street, and spending for Social Security and Medicare.

And throughout all of this, state governments continue to act like the tin cans on the just married car, in clamoring for more U.S. federal taxpayer help.

Rep. Jason Chaffetz (R-Utah) has already introduced  legislation last month that will dial back Congress’s  federal bailouts of state and local governments, notably for their employee pension plans.

Chaffetz said in a statement: “Another wave of debt problems is coming our way.  State and local government employee pension funds have unfunded liabilities of more than $3 trillion, and many states will not be able to deliver on promised benefits to government employees. Many of these states will undoubtedly be coming to the federal government for bailouts.”

Chaffetz says it is wrong to enact any federal bailout of state and local government employee pension funds. Here are his reasons, which came in a statement:

First, states are already heavily dependent on federal funding. In recent years, more than 15% of total federal budget has gone directly to state and local governments. In FY 2009, state and local governments received $538 billion in federal dollars out of a total federal budget of $3.5 trillion. The percentage was even higher in FY 2010 during the stimulus. Also, about one-fifth of state and local government general revenue comes from the federal government.

Second, despite claims that state and local governments deserve a bailout because their budgets have been harmed by the very recent economic downturn, state and local government employment has grown 9% since 2000 while private sector employment has decreased nearly 2%. Not only has the private sector become more productive over time, the private sector continues to move away from defined benefit plans and towards defined contribution plans which do not have unfunded liabilities.>

Third, the federal government is already in dire fiscal straits and is no position to bailout state and local governments.  Federal debt is more than $14 trillion of which $9.4 trillion is owed to the public and $4.6 trillion is owed to Social Security and other trust funds. In 2010, the federal government borrowed 37 cents for every dollar it spent, and foreign governments, individuals, and corporations own 47% of debt owned by the public. Moreover, Social Security’s unfunded liabilities in 2010, which do not show up on the government’s balance sheet, are $5.4 trillion over 75 years and $16.1 trillion over the infinite horizon.

Fourth, many states, like Utah, have been fiscally responsible with their government employee pension plans. Congress should not expect federal taxpayers in fiscally responsible states to bailout taxpayers in fiscally irresponsible states.