Another State and Local Bailout?

March 12, 2010
Rep. George Miller (D-CA) has introduced a bill that would give state and local governments another $100 billion to prevent public sector job cuts. The bill was written at the behest of the U.S. Conference of Mayors and other local special interest groups addicted to federal largesse.  
These days it’s hard to open a newspaper without reading a tug-at-the-heart-strings story about state and local officials having to make the “painful” decision to cut supposedly crucial government spending. Very rarely do journalists dig in deeply and examine in detail where state and local governments are actually spending their giant budgets.   
Sometimes stories highlight some superficial waste, such as this Los Angeles Times story reporting that “As Los Angeles County supervisors prepare to carve deeply into everything from public safety to social services, they also are spending millions in taxpayer dollars to burnish their public images, pay for chauffeurs, hold parties for friends and lobbyists and support pet projects.”
The story assumes that every penny L.A. County spends on public safety and social services is a penny well spent. Like their federal counterparts, state and local programs are rife with waste, fraud, and excess. Unfortunately, for every one hundred stories you read about teachers being furloughed, you might read one that questions the basic efficiency of services being provided or possible private-sector alternatives.
In a new Cato Policy Analysis on the cost of public education, Adam Schaeffer found that Los Angeles school district’s real per-pupil cost is $25,000 – not the $10,000 it reports. This compares to average Los Angeles private school per-pupil spending of $8,400. 
The rise of public sector unionism is another subject that should be getting more media attention as state and local politicians warn of having to “slash” programs. According to a recent study by Chris Edwards, half of the $2.2 trillion state and local governments spent in 2008 went to employee wages and benefits. Edwards found that “public sector unions push up the costs of the public sector workforce in the United States by about 8 percent, on average, but the increase would be more in states with highly unionized public sectors such as California.”
The lavish benefits state and local politicians have bestowed upon public employees have created massive unfunded liabilities. A recent study by Robert Novy-Marx and Joshua Rauh calculated that state and local pensions are underfunded by a whopping $3.2 trillion. Jagadeesh Gokhale and Chris Edwards estimate that public employee health benefits are underfunded by an additional $1.4 trillion.
Another bailout for state and local government like the one Congressman Miller is proposing creates a disincentive for state and local policymakers to implement necessary reforms to get their budgets and future liabilities under control. It also creates a disincentive for local citizens to be vigilant when it comes to state and local spending. Why bother attending city council or school board meetings when the federal and state governments are picking up a hefty portion of the tab for local spending?
The decades of increasing centralization of what were traditionally local responsibilities has fueled extravagant spending at all levels. Instead of continuing to aid and abet state and local politicians who are only too happy to spend the “free” money the federal government shovels their way, it’s time to get back to our constitutional roots with a return to fiscal federalism.




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