Regulatory Reform

States Should Avoid Federal Bailouts – Even Illinois Agrees

Certainly, the past decade has been a difficult one for states, and policymakers are searching for ways to stay afloat. Some pundits and policymakers now want the federal government to assist the states by “bailing them out.” We remain unconvinced.

A federal bailout would conveniently ignore the chief contributing factor to state budget problems: Out-of-control spending. A recent study from the Mercatus Center at George Mason University showed that state spending has grown more than 90 percent faster than the private sector over the past decade. That trend is clearly unsustainable.

State lawmakers have a responsibility to streamline government, eliminate redundancy, and make state government more accountable to the taxpayers.  This means prioritizing core functions of government (as outlined in ALEC’s State Budget Reform Toolkit).

It is clear that a federal bailout would lead to more growth in government and increased burdens on taxpayers. Furthermore, a federal bailout would exacerbate the structural imbalances between expenditures and revenues that already exist in many states.  The academic research suggests that every $1.00 of federal aid to states drives state taxes higher by 33 to 42 cents.

The Illinois House of Representatives just considered a resolution opposing federal bailouts. Resolution 720 recently passed the Illinois Legislature with broad, bipartisan support.  This policy urges the federal government to take no action to “redeem, assume, or guarantee state debt.” This vote signals that Illinois may be ready to take the steps necessary to correct the state’s fiscal imbalance. According to a recent report from the Illinois Policy Institute, a nonpartisan think tank, government spending is still on the rise, and despite a 67 percent income tax increase in Illinois, the state will not have enough money to meet all its obligations.

If lawmakers from Illinois are saying no to a federal bailout, then Congress should get the message, loud and clear, from the states. Thanks, but no thanks.

In Depth: Regulatory Reform

In his first inaugural address, Thomas Jefferson said that “the sum of good government” was one “which shall restrain men from injuring one another” and “shall leave them otherwise free to regulate their own pursuits of industry.” Sadly, governments – both federal and state – have ignored this axiom and…

+ Regulatory Reform In Depth