States of Distress

New York Governor Andrew Cuomo will speak to journalists at the Javits Convention Center in New York City on March 24. (Eduardo Munoz Alvarez / Stringer / Getty Images)

Republicans must draw a line on federal aid

“Federalism ” is a word that does not appear in the constitution, and perhaps it is a good thing. We are too inclined to simplify the complex relationships between the state governments and between them and the national government. The fact that the Constitution deals with aspects of the subject in dispersed provisions, and sometimes only implicitly, could limit that trend. If the text were to use the term itself, our arguments about relationships would dwell on its meaning even more than they already do.

The coronavirus epidemic has raised new questions and raised old questions about how the federal government interacts with states. Democrats accuse the Trump administration of leaving states to take care of themselves and – at least in thematic contradiction – threaten to run rough over them. Republicans insist on limits on aid to states and limits on the authority of states to impose restrictions on people and businesses. Each of these views is rhetorically justified in the name of federalism, and opponents of each have been criticized for hypocrisy over federalism.

The arguments about the power to adopt policy are easiest to settle. Nothing in the text or history of the Constitution, and no statute, gives the President much authority to close or open a state, let alone the “total authority” he has said. Attorney General Bill Barr, on the other hand, is absolutely right when he says that if state closures violate constitutional rights or interstate trade, the Department of Justice may have to join court cases in which federal courts are requested to intercede.

If states and places choose churches for restrictions, as has happened in some places, it is the federal government’s duty to intervene. There is an argument that the first amendment, correctly interpreted, does not apply to states and places, but that the ship sailed decades ago and Barr’s critics do not want to bring it back. Critics are concerned that Barr will try to force states to live up to his preferences to quickly end orders on the ground. But he has not said or done anything to support that fear; he would need federal courts to make this project a success; and this concern is by no means a valid reason for his department to allow the state violations of the constitution to exist.

The federal government’s arguments about coronavirus assistance to states cannot produce such a clear resolution. The states need money: the virus places new demands on spending, even if the recession it caused caused revenue to drop. While state funds are generally in better shape than when the Great Recession struck 12 years ago, it could not reasonably be expected that a state would have enough savings to absorb this blow, as well as companies.

There is much support for federal aid. To begin with, the expectation of federal assistance in the event of a public health emergency may prompt state governments to take measures that bring benefits to other states. We wouldn’t want a state to cut back on security measures because of the costs and infections caused to its neighbors. On the other hand, the policy of state closings generally followed the guidelines of the federal government. And the states don’t have the federal government’s ability to borrow. Some of their borrowing limits are self-imposed, a matter of state constitutional provisions, but they cannot be eased quickly. We should not risk massive layoffs of state workers in the midst of an epidemic and recession, or major tax hikes while we wait.

However, what worries Republicans more and more is that the current crisis will become an opportunity to solve problems that the state governments have created for themselves. In particular, they want to avoid paying underfunded state pensions. Over the years, states have promised their employees retirement benefits without giving away enough money to pay for them. Private pensions have lowered their expected returns in the past two decades; government pensions generally plan as if it were still in 1993. Their portfolios become more risky, even as the age distribution of their participants increases. The Federal Reserve estimates a funding gap of $ 4 trillion.

When conservative radio host Hugh Hewitt asked Mitch McConnell about the pensions of California, Connecticut and Illinois, the Senate majority leader said bailouts are not off the table, but that adding a provision to federal law that allows states to file for bankruptcy is a good idea is. It is no coincidence that the three states mentioned are reliably democratic. With one measure of pension underfunding, five of the six least responsible states voted Hillary Clinton in 2016, while five of the six most responsible voted for Trump. But the problem does not neatly distribute red from blue states. The worst thing on the list is McConnell’s home state of Kentucky, which has not voted for a Democratic presidential candidate since Bill Clinton was on the ballot.

However, the general biased tendency influences the way in which politicians think about the payment of AOW. When McConnell’s office released his comments under the heading of “stopping emergency aid to the blue state,” Democrats like New York Governor Andrew Cuomo replied that his state is sending more money to the federal government than it gets, while conservative states like Kentucky get more than they send.

Cuomo may have had the impression that McConnell condemned aid to states in general, rather than making a big deal about pensions. Much of the reporting promoted that impression. However, looking at the pension issue, the pattern of “net recipient” and “net donor” states is irrelevant. New Yorkers, on average, pay higher federal taxes than Kentuckians because they also have higher incomes and federal income tax is progressive – something that supports Cuomo more than McConnell. But the fact that New Yorkers have higher incomes is no reason for them to receive more federal transfers.

A federal bailout would encourage the future irresponsibility of the states. It would also be unfair. Teachers in Wisconsin, where pensions are relatively well managed, should not have to pay higher taxes because Illinois politicians have made unrealistic promises. But a state pension crisis could form a formidable bipartisan coalition for a bailout plan, with much of Wall Street joining public unions to demand one. A few days before McConnell made his comments, the President of the Illinois Senate had sent Congress a letter asking for $ 50 billion in aid, presumably because of coronavirus-related needs. Ten billion would go to state pensions.

That’s why McConnell is thinking about changing federal law to bankrupt states: to address the long-lasting retirement problem, not the corona virus that hits state finances. With a new bankruptcy provision, a state with more claims on it than it can pay would have the option of settling it in federal court. Bondholders might get back less than they hoped, and state workers could see their benefits increase more slowly or even see the benefits they thought they had already earned. The availability of this option may reduce the pressure for a rescue operation. David Skeel, a professor of law at the University of Pennsylvania, has argued that a bankruptcy option would also promote better decision-making by states. Unions want more pension benefits to be pre-financed if the alternative loses part of it in bankruptcy.

Opponents of the bankruptcy idea say it is an unconstitutional violation of state sovereignty. But the Supreme Court has enforced federal bankruptcy provisions for state subdivisions since the 1930s. And the scenario of bankruptcy, a federal rescue of state pensions, would in itself be a major and unprecedented change in state-to-state relations.

Some proposals have been made to assist state governments in the coronavirus epidemic without subsidizing their spending in general. Yuval Levin, my colleague from the American Enterprise Institute, proposes dividing the requests of the states into three categories. The federal government would fund the states for the direct costs of the response to the disease, such as health care expenditures, and for the additional pressure on unemployment insurance. It would lend states on favorable terms to offset their revenue losses. (Because it would be loans, they would minimize subsidizing high-tax states by low-tax countries.) To fix the shortcomings of the state pension, Congress would either create a bankruptcy option or at least support conditions such as states’ approval of normal accounting standards.

The conditions for the states can appeal to federal officials because they seem less radical than bankruptcy. But the constitutional problem could be worse. In a 2012 decision, the Supreme Court dropped a provision from Obamacare that required states that accept Medicaid funding to extend the program, saying the condition was overly compelling. However, that decision did not specify when the conditions exceed acceptability, and the constitutional text does not contain an answer.

When planning further responses to the crisis, federal officials will have to weigh the risks of under- and over-spending, as will government officials overweight and under-weigh. The political bickering will be intense. Now that the Constitution remains silent on most of the disputed issues, those involved will have to determine how best to achieve the founders’ best goal: an effective, limited and responsible government.

States of Distress

Ramesh Ponnuru is a senior editor for National assessment, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute and a senior fellow at the National Review Institute.


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