President Hopes For Another Fiscal Assistance Package For States

President Obama can't help but see the fiscal disaster at the state and local level. Every day there's a new headline about the dire fiscal situation, threats of shutdowns, and state spending that has to be slashed because taxpayers are in a foul mood and aren't going to stand for still higher taxes.

So, what's he preparing to do? He's trying to rally support for another federal aid program to the states - $50 billion that the federal government doesn't have to help states that are fiscally irresponsible and got themselves into a ticking fiscal time bomb of epic proportions.

Of course, the president is trying to use the old saw - the plan is necessary to prevent the layoffs of teachers, policemen and firemen.

The states could have avoided this mess by not ramping up spending at several times the rate of inflation over the past decade and imposing taxes at ever higher levels and then watching it all come crashing down with the recession. Some states responded to the changing financial circumstances by taking prudent measures to limit spending and revenue adjustments that didn't include broad based tax hikes like Colorado and Utah. Those states are in better shape than those that kept on spending - like New York and California.

As I've repeatedly argued - the federal government's repeated bailout of states over the past two years has meant that the states in the worst fiscal shape could avoid having to make long-delayed and necessary decisions to bring them onto a sound financial footing.

The infusion of billions of dollars in New York means that the state can avoid asking why it needs the size state workforce it has, why it can't adjust benefits packages to make them on par with private-sector jobs, why the state shouldn't switch from defined benefit to defined contribution plans, and why hundreds of agencies and departments exist when their jobs could be consolidated and/or eliminated. Moreover, it means everyone can ignore the soaring medical costs that are one of the drivers of the huge New York budget.

Repeat that scenario around the country and you simply extend the misery because the states simply will not reduce their spending to match revenues and instead seek to raise taxes or plead for a federal bailout to help them along.