Another Government Employee Bailout

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President Obama is proposing to give the states another $50 billion. However, that would amount to another bailout for state and local government employees and their unions. The president claims that more deficit spending is necessary to sustain the nascent economic recovery. But the only thing the money would sustain is the excessive wages and benefits government employees enjoy at the expense of the private sector.

According to the Bureau of Labor Statistics, the average state and local government employee receives 45 percent more in total compensation per hour worked than the average private-sector employee. Perhaps then we should cut generous government wages and benefits rather than putting the federal government further into debt?

Total compensation for state and local workers is more than $1.1 trillion a year. So instead of a bailout, we could simply cut government compensation by less than about five percent for state and local governments to save $50 billion.

Of more fundamental concern is the relegation of the states to being administrative outposts of the federal government. The employment of firefighters, teachers, and police officers is an issue for the states to be concerned with. However, if the federal government keeps overstepping its constitutional boundaries and bailing out the states, state politicians will have little incentive to trim excessive employee compensation.

As the following chart shows, federal aid to state and local governments has almost doubled in real terms over the past decade:

 
 
It’s not a coincidence that the states find themselves in a fiscal bind. The increasing dependency on the federal government has contributed to the states’ dereliction of duty when it comes to keeping their fiscal houses in order. As this essay argues, reviving fiscal federalism is critical to getting governments at all levels in the United States to clean up their fiscal messes.