Next Coronavirus Package Should Not Bail Out States For Past Mistakes

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Posted by Tom Hebert on Tuesday, July 21st, 2020, 5:00 PM PERMALINK

Lawmakers and the Trump Administration have begun negotiations on another Coronavirus relief package.

As policymakers consider options to help the American people through the pandemic, Congress should not use the crisis as an excuse to let states off the hook for decades of fiscal mismanagement. If lawmakers insist on providing more aid to states and localities, it should be tied to strict conditions to ensure federal dollars are not wasted on frivolous expenses unrelated to the pandemic.

Even though Congress has already spent trillions of dollars responding to the pandemic, Democrats want to spend trillions more.

In March, Congress passed the $2 trillion “Coronavirus Aid, Relief, and Economic Security” (CARES) Act, the largest relief package in American history. In April, Congress authorized $310 billion in additional funding for the CARES Act’s Paycheck Protection Program (PPP) in the “Paycheck Protection and Health Care Enhancement Act,” pushing the cumulative Coronavirus relief Congress has already authorized to nearly $2.5 trillion.

The Democrat-controlled House of Representatives recently passed Speaker Nancy Pelosi’s “Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act,” a $3 trillion wishlist of long-held liberal priorities completely unrelated to fighting the Coronavirus pandemic.

The HEROES Act contains a blueprint for how Democrats would let irresponsible blue states off the hook for past mismanagement if they had full control.

The Pelosi plan contains a $500 billion bailout to states, a $375 billion bailout to local governments, and $40 billion in bailouts to tribal and territory governments.

On top of this $915 billion no-strings-attached bailout slush fund, Pelosi calls for $81 billion in enhanced Medicaid funding and $100 billion for “dedicated expenses” that would not have existed prior to the pandemic, adding up to $1.08 trillion in total bailout cash.

$714 billion of the Pelosi bailout cash is deemed “flexible,” which means that states can use it to backfill budget gaps  and subsidize projects completely unrelated to fighting COVID-19.

The total $1.08 trillion bailout approximately equals the amount of revenue that states collected in FY2019. Moody’s projects that state and local governments are expected to lose a combined $482 billion across FY2020 and FY2021, making this allocation more than double what states are projected to lose in revenue.

To be clear, states have incurred tremendous costs related to the pandemic. However, Congress has already established a system for states and localities to be reimbursed for pandemic-related expenses. The CARES Act created the Coronavirus Relief Fund (CRF), a $150 billion fund to help state and local governments with unplanned pandemic-related expenses like testing, acquiring and distributing personal protective equipment, and payroll expenses for first responders and other essential employees.

Unlike the CRF, the Pelosi plan contains no limitations on how states should spend this money, so irresponsible states will use this windfall to wash away decades of fiscal mismanagement.

Among other things, greedy blue state lawmakers could use this money to shore up their mismanaged pension systems. In 2017, the state pension gap was $1.28 trillion. This means that states would need $1.28 trillion just for their pension systems to break even.

Federal bailouts in times of crisis has historically led to expansions in state spending, creating a moral hazard and disincentivizing decision-makers from being prudent stewards of taxpayer resources. Following a $20 billion federal bailout for state budgets after a market downturn in 2003, state spending rose by 33 percent in the subsequent five years and state debts increased by 20 percent in the following four years.

As a new Coronavirus package takes shape, lawmakers need to ensure that any new money for assisting state and local governments is narrowly tailored to costs related to COVID-19 mitigation.

No matter how lawmakers decide to assist states and localities, any new funding must come with strict accountability measures to ensure blue-state lawmakers don’t grab federal cash with both hands to clean up past mistakes.

Photo Credit: Images Money - Flickr

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