Lars Larson: States asking for a bailout from the Federal government

I don’t imagine how it could ever work, but states across America are asking for a bailout by the Federal government.

There are a lot of states in big budget trouble and it is primarily their fault. I don’t mean the taxpayers. I mean local governments and state governments that have decided to spend too much money.

They were free-wheeling when it came to granting raises and increasing the benefits of public employees. You’ve probably seen Chris Christie back in New Jersey really giving it to the teacher’s union on just that issue.

The problem is now that the crows have come home to roost. The money isn’t there to pay the salaries that all those big-shot politicians promised. So now the states are turning to the federal government. They want the federal government to borrow more money from places like China and use that borrowed money to pay the bills of states.

We’ve got to just say “no” to this idea. The federal bailout should not happen.

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  • Anonymous

    I agree, the bailout by the feds should never happen. Let the states, like Oregon, file bankruptcy and renegotiate contracts with the public employee unions including the teachers. In the interim the states need to do what the private sector does, cut overhead by reducing salaries and laying off employees. After all, how many Diversity Coordinators does Oregon need? Government should never be exempt from the conditions of the economy.

    • Ronald Marquez

      Amen, Anon.

      Government bailouts are funded by the taxpayers who need to wake up and tell their elected representatives to live within their means.

      No to stimulus, bailouts, or whatever else you care to call them.

    • eagle eye

      “Bankruptcy” is completely unnecessary, unless you are part of the Rahm Emmanuel school.

      But under what law would a state “file bankruptcy”?

      • Rupert in Springfield

        Again – the state would either go into Federal receivership, which would have some similarities to bankruptcy or simply default on the debt.

        Although it is not common, states in the past have defaulted on substantial debt obligations. Sometimes the debt is completely discharged in this fashion, other times it has been renegotiated.

        I think the bottom line is nothing alters the basic reality that you cannot get blood from a stone.

        If states have debts there simply is no way for them to pay, then the debt will have to be either discharged or renegotiated.

        Being state does not alter the basic rule of money – if you don’t have it and cannot get it, then there is no way to pay it. In other words, it doesn’t matter if their is a law or not, if they aint got it, they can’t pay it.

        • eagle eye

          OK, so Oregon — I assume we are talking about our dear State — would revert to something like territorial status. Great! Perhaps you would like our dear President Obama or perhaps a future Obama Supreme Court dictating, e.g., higher taxes to pay off Oregon’s debts.

          But Oregon is in no such crisis. The long-term structural deficit in its budget is not that large. It might be 10%, at most 20%. A big problem, but not a catastrophe. No reason to talk about “bankruptcy”.

          I guarantee, any party that advocates “bankruptcy” for the state is going to be out of office for a long time to come.

      • Anonymous

        eagle, you keep forgetting that the folks around here hate everyone who thinks differently than them so much that they want nothing more than to see Oregon suffer. They want to be right so bad that they will make comments such as “it doesn’t matter if their is a law or not” with a straight face.

        • eagle eye

          That’s what I meant about the “Rahm Emmanuel school”. I am so tired of everyone from the radical left and the radical right trying to make our current problems insoluble as a pretext for putting into place their radical agendas. I’m interested in public figures who want to solve our problems, not those who want to wreck things.

        • Steve Plunk

          There’s no hate here. Political passion but no hate. I’ll have a beer with any of the Libs who troll around.

  • Bob Clark

    I think if states like Oregon would deregulate, loosening land restrictions and energy supply restrictions to mention a few, they could actually attract new business and be much more competitive in a global economy. But instead the democrats have been focusing on federal government hand outs for the last two decades with its money losing projects like light rail and roof top solar panels to mention just a few. The focus of democrats like Obama is on fairness when the only true way to solve issues of fairness is to grow the stinking economy first. Fairness becomes a race to the bottom when the economy is stagnating, or even worse in decline.

    I would rather take our medicene now in the form of government austerity measures than continue on down the path of the recent Greek experience. Much of Europe is now invoking government austerity measures whereas the Bama and Kulongoski regimes only give lip service to the idea.

    • valley p

      “I don’t imagine how it could ever work…”

      Then you need to work on your imagination. It works like this. The House and Senate pass bills that grant money to states and the president signs the bill. The money is created through borrowing, just like we borrowed to finance 2 wars, Medicare Part D, TARP, and the stimulus. The states avoid further layoffs and service cuts, the economy grows, and we pay back the loans.

      • Rupert in Springfield

        Oh good lord – We pay back the loans?

        Are you kidding me?

        2 wars, Medicare part D…yadda yadda I mean seriously?

        Those are penny anti games. And yes, we all did notice that seem to only find spending under Bush.

        Well, hate to break it to you but the hugest spending and borrowing this country has ever done is for SS and the Great Society programs. Nothing sucks down money like those babies.

        Do we ever pay back the loans?

        Nope

        In fact it is actually illegal to pay back those loans.

        Any money taken from the SS side of the ledger can only be paid back with t bills. In other words an IOU. It is actually against the law for SS to “invest” in anything other than T Bills.

        You are suffering under a serious delusion that deficit spending is simply another word for Keynesian economics. It is not. The key element of Keynes was government saving in good times so they could spend in bad times. Our government spends in good times and spends more in bad times. That’s not Keynes – thats just spending.

        The proof of this is government hiring.

        Government hiring is not Keynesian. In fact it is anti Keynesian. Government workers are permanent hires, in other words, once the economy improves, they are still on the job, money is still being spent on them, so there is no way to now save for the bad times.

        Seriously, if you think loans are being paid back you are truly delusional. Our national debt has grown and grown, yet you see loans being paid back. Once again, please step back from economic discussions. To think we are paying back loans in any sort of significant fashion is really more than a little ridiculous

      • Anonymous

        valley pee’s life experiences obviously don’t include any education in the science of economics. Government cannot cause economic prosperity (growth) by borrowing money. It has never happened Look at the last bailout that president zero said would not allow the unemployment rate to go over 8%.

        God, I wish George Bush was still President. I knew fewer people that were unemployed and my income was higher. A couple more years of the current idiot in the white house and we will be broke.

        • valley p

          “Those are penny anti games.”

          Oh. OK. I understand your economic theory better now. A trillion here, a trillion there. Penny ante.

          “Well, hate to break it to you but the hugest spending and borrowing this country has ever done is for SS and the Great Society programs.”

          SSI has been taking in more money than it has been giving out for decades. Medicare has been more or less solvent for decades. When democrats pass programs, they usually also pass taxes to finance them. Its your team that cuts taxes and then increases spending.

          “The key element of Keynes was government saving in good times so they could spend in bad times. Our government spends in good times and spends more in bad times. That’s not Keynes – thats just spending.”

          Well “our government,” when it was the Clinton Administration, managed to hold spending down and run a surplus in good times. Then “our government,” in the form of your pal Bush, managed to run huge deficits in good times. Now we are in bad times….really bad times with respect to unemployment. Keynes would say spend as much as you can get out the door until the private economy starts using our productive capacity again. Its in the introduction to his book.

          “Government workers are permanent hires,”

          Are you serious? Census takers are clearly not permanent. Infrastructure spending that builds projects using private contractors does not create permanent hires. I have a colleague who got a job with the DOE on new transmission lines. He has a 2 year appointment. The stimulus spending was 100% temporary. It created no new permanent hires. Not one. That is Keynes.

          “Seriously, if you think loans are being paid back you are truly delusional.”

          No, I’m actually seriously fact based. The growth of the debt is happening for all sorts of reasons, but many if not most of the loans made over the past 2 years have already been paid back. Others are being paid back. Will we get a 100% return? It doesn’t look like it. Some companies, like AIG and Fannie-Freddie were so far in the hole they will never make it back all the way. Its the price we are paying for our stupidity in letting Republicans and conservative Democrats deregulate the financial industry.

          “Government cannot cause economic prosperity (growth) by borrowing money.”

          The examples where government did create prosperity by borrowing money are far too numerous to list here. Have you never heard of government bonds to pay for infrastructure that allowed private economic development to take place?

          • Anonymous

            vp, I am compelled to mention that there are multiple individuals commenting here anonymously.

  • Rupert in Springfield

    It is perfectly logical for states to ask for this money.

    We all paid for the bailout of auto unions when the feds handed over the money to Chrysler. That money is gone and its never coming back.

    So therefore if one accepted that, then there is no logical reason why the states could not receive the same in turn.

    Of course if one thought the federal government paying for the auto companies mistakes was a bad idea, and I am one of them, then there is a logical reason for the states not to receive bail outs.

    Frankly I doubt my view will hold. Our country is built on subsidizing the bad decisions of others. We have bailed out the steel industry endlessly with tariffs, because they refuse to modernize because they always get bailed out. We bailed out the auto companies.

    Sometimes the decision to bail out is fair. The federal government had great responsibility for the sub prime mortgage situation, so it has a responsibility to bail out those who invested in those mortgages.

    Sometimes it is not fair – the federal government should not be handing money to auto companies and telling the people it is a loan when they know damn well the auto companies will discharge the debt in bankruptcy.

    When the people in charge believe doling out money is the answer to everything, expect more of the same.

    • Anonymous

      You remind of Wally Shawn’s character from “The Princess Bride”… Inconceivable!

      By the way, Chrysler has shown Q1 profit and is hiring again. They’ve obviously got a long way to go, but it’s possible things could turn around in the next few years. I think their debt will get paid.

      • bennie

        You mean like the 8 billion GM was touting as paid off againts the 52 billion that they were given? 52 billion in taxpayer money to bail out the Union Pensions and retirees health plans. The 8 billion that they got from the feds anyway. Robbing Peter to Pay Paul. What a joke. The taxpayers will forever be bailing out both Obama Motors companies. GM and Chrysler. That’s why the Unions are trying to torpedo Ford, so they can get in on the Government Taxpayer funded gravy train.

        • Rupert in Springfield

          He wasn’t actually trying to make a point. He is just threatened so thats why anonymous prude guy always leads with the insults.

          Face it, the guy didn’t even know the Chrysler debt had been discharged. He’s still thinking it will get paid back.

          It don’t get more stupid than that.

          I mean that’s really stupid.

          • Anonymous

            Amusing that you imagine yourself as taking the high road here.

            And Bennie, perhaps you should put down your copy of “The Fountainhead” every now and then, turn off Glen Beck, and get your news from somewhere other than the ironically titled Reason.com.

          • Bennie

            Anonymous – What is confusing about the fact that GM took 8 billion from the Treasury (from that Tax cheat Geithner), taxpayer funds to “Pay off” 8 billion that is owed the government. Then the CEO prances about in a commercial claiming they are on the road to recovery! You need your hip boots to wade through all of the “umpalla” being thrown about.

            Obama motors is just one big slush fund for the Unions and the Dems. All at taxpayers expense. Perhaps the information you are getting from the Huffington Post leaves a few facts out.

          • Anonymous

            As a matter of fact, Bennie, when the auto bailouts first happened (under the direction of the Bush administration, NOT THE OBAMA ADMINISTRATION THAT I DID NOT VOTE FOR) they turned my stomach. I have since come to appreciate the difficulty and the necessity of those decisions. Letting the U.S. auto industry crumble and 200,000+ people lose their jobs would have been far more devastating to our economy than the alternative. It’s that simple.

            “Obama motors is just one big slush fund for the Unions and the Dems.”

            That is an absolutely idiotic and untrue statement, and I do not say so in defense of the Obama administration. I say so because it’s absolutely idiotic and untrue. The U.S Treasury and the Canadian government have a combined 70% stake ($50b) in GM. Those funds were never considered loans and will not be recovered until the IPO. Another $8b was a loan, and that loan has been paid back (I have no idea where the money came from, you seem to think you do, we’re at an impasse there…)

      • Rupert in Springfield

        >You remind of Wally Shawn’s character from “The Princess Bride”… Inconceivable!

        Don’t remember the movie at all, but I am sure this is more of your lame insults.

        Thats fine, we all know you don’t bring much brain power to the table, and you prove it quite nicely here.

        Ready?

        Here we go……

        >They’ve obviously got a long way to go, but it’s possible things could turn around in the next few years. I think their debt will get paid.

        Well, keep thinking that because they discharged that debt in bankruptcy over a year ago.

        Here ya go:

        https://money.cnn.com/2009/05/05/news/companies/chrysler_loans/

        “Chrysler won’t repay bailout money – An administration official confirms that a $4 billion bridge loan and $3.2 billion in bankruptcy financing won’t be paid back by Chrysler following bankruptcy.”

        Seriously – In the past I have pointed out that you don’t bring a lot to the table other than dull witted insults.

        So next time don’t go trying to be clever ok? Don’t lead with an insult and then totally screw up with this “I think the debt will get paid” when it was discharged over a year ago.

        Got it?

        Just stick to comments your brain can handle like “You’re stupid” or “I want beer”

        To put it in your language, pro wrestling – you just got body slammed. Stick to the simple stuff from now on. You are pretty much out of your league here.

        >By the way, Chrysler has shown Q1 profit and is hiring again. They’ve obviously got a long way to go, but it’s possible things could turn around in the next few years. I think their debt will get paid.

        Well if you think that then you are probably alone on that one.

        Chrysler discharged their debt obligations through bankruptcy.

        you were

        • Anonymous

          Holy cow! Rupert, you are not who you think you are (I appreciate that that is probably a confusing statement for you, hence the “Princess Bride” reference… Wally Shawn’s character regarded himself as a genius – in short, he was not).

          Did you even read the article you linked to? The loan I was referring to was the $4.7b made available to chrysler post-bankruptcy, not the Bush administrations $4b bridge loan that was written off in exchange for an 8% equity stake in the company.

          “Chrysler projects that by 2014 it will have an operating profit of $5 billion and will have repaid its loans from the U.S. Treasury.”

          https://www.washingtonpost.com/wp-dyn/content/article/2010/04/21/AR2010042100984.html

          Let’s try and stay current shall we, genius?

    • valley p

      “I think the bottom line is nothing alters the basic reality that you cannot get blood from a stone.

      The problem with your analogy is that states are not stones and are financially capable of paying their debts. The problem is political. Can elected politicians raise taxes and or cut spending and remain in office? Will those who elect them support the measures necessary?

      “We all paid for the bailout of auto unions when the feds handed over the money to Chrysler.”

      Wrong on 3 counts. First, we all did not pay. The government borrowed in our name. You and I have yet to fork over a dime to the auto companies. We are not even paying interest on the debt, since we are borrowing that as well. Second, most of the money went to GM, not Chrysler. And 3rd, some of the money has already been paid back, both companies are again profitable, and prospects for eventual payback are pretty good if the economy continues to grow and people buy cars.

      “Frankly I doubt my view will hold.”

      Dare we hope?

      “The federal government had great responsibility for the sub prime mortgage situation”

      Right. It was all Barney Franks fault. Private financial institutions, realtors, mortgage brokers, insurance companies, and bond rating agencies were innocent victims. You are in some sort of competition for the most gullible person on the planet right? What is your current ranking?

  • Steve Plunk

    I wonder how much the state could realize from selling it’s assets in a bankruptcy type situation? Forest land, buildings. or whatever else they might have could be worth quite a bit. Maybe it’s time to liquidate some things to pay the bills and fund those unfunded liabilities.

    • eagle eye

      Ah, so that’s the plan! I’ve been saying for quite a while that a “bankruptcy” might well result in an asset liquidation. I’m glad to hear that this is indeed what is foreseen and perhaps hoped for.

      The property list is pretty extensive: the state office buildings, including the Capitol building; state highways; state parks; the state universities … I don’t know who “owns” the municipal and school facilities. But it’s quite a list.

      I would take this to Chris Dudley. It would make a wonderful platform!

      • valley p

        We are going in the opposite direction. Oregon is getting close to opening a new state park, Cottonwood Canyon on the John Day River. And we just christened a new state forest , the Gilcrest, down by K Falls. And what is most interesting is that the state bought the Gilcrest to preserve what is left of the timber industry, which is busy dissolving itself by liquidating trees and subdividing land.

        But I do think Dudley could win all 12 or so of regular Catalyst posters by selling anything not nailed down. What a great idea.

        • eagle eye

          Starting a state forest to preserve a dying industry after it’s too late. That’s Oregon! It would be interesting to know the breakdown of D vs. R support for that forest.

          • valley p

            I don’t know, but given that it is propping up a very rural, dare I say red-neck area, I would imagine that Republican legislators are very supportive of this particular property asset that Steve would want to sell.

            Free market fundamentalists, like those who populate Catalyst, don’t like to admit this but the timber industry for the most part has no interest in preserving itself. The economics of holding assets 5 or more decades until you cash them in are lousy and not sustainable. This is why public or non profit community based ownership of productive forests makes sense, because the public can afford to wait for the cash while it enjoys the other non monetary benefits the forest provides, from clean water to wildlife, to recreation. Small, non industrial timber owners also can afford to wait because they tend to enjoy these other benefits. But publicly traded companies cannot sit on assets that are at continuous risk of disease, fire, windstorm, or theft.

            The Gilchrest forest was owned by one family for over 100 years. They could go slow on harvest because they had no outside stockholders to pay dividends to. Once they sold to a publicly traded company, that was the end of their beautiful forest. it was liquidated, the company went bankrupt, and now we the people have bought the badly degraded asset simply to keep it intact.

            Its not too late for the timber industry. But the future is no doubt a much smaller and different industry than the one people around here are pining for (pun intended).

          • eagle eye

            The Oregon land use laws are actually largely in support of the timber industry and some of its friends, including a lot of workers. Zoning land for industrial forestry. Personally, I’d rather allow the land to be developed for other uses OR preserve it via public ownership for parks and other recreational uses. What we have now seems like the worst of both worlds: enforced private ownership for marginal economic uses, resulting in a devastated, unappealing industrial forest.

            In Lane County some years back, there was a move to allow the timber companies to sell of their land in 80 acre units for private housing. The timber companies were for it, but it got voted down. In my opinion, this was a mistake, for the reasons above.

          • valley p

            I tend to agree with you, though I would probably enlarge the 80 acres. The rough number is that one could make an average of $200 per acre per year on medium quality Oregon timber land. So a private owner could make a modest living on 250 acres and would not have to pillage the place to do so. Nor would he/she want to pillage if they were living amongst the trees. The downside is that you get more homes stuck in the woods, and that makes fire fighting difficult and expensive and frankly more dangerous.

            Your pointing out that the timber companies were for being able to subdivide proves my point. They don’t give a rip about their own industry. They go for the highest return of the moment, and if that means selling your land and closing the mill then so be it. People who romanticize the timber industry have not spent much time working in it.

            By the way, the timber industry pays virtually zero property taxes on that land. They pay a small severance tax on the timber when they cut it, which does not even cover the cost of state administration and fire fighting.

      • Steve Plunk

        You seem highly critical of any plans being offered. What ideas might you have? Please include our unfunded pension costs as part of the problem.

        • valley p

          Ideas for the state budget? Sure. number 1 I think a temporary and limited federal bailout of the states is appropriate. The feds can print money, the states can’t. The economic crisis we are in is a national issue, not one the states can fix. Laying off teachers, prison guards, cops, and so forth only increases the number of people on the street looking for still non existent private sector jobs. Better to have people doing something useful and productive until the private sector ramps up again.

          Number 2, I think taxes have to go up, pretty much across the board. We have been under funding government for decades, which is why we have mounting federal deficits and strapped state and local budgets. We declared 2 wars and created a new entitlement program and then cut taxes. It made no sense at the time and still doesn’t. We have to grow up and pay for the services we say we want. I think a national value added tax with half distributed to the states is the fairest and least painful way. But I would also add a serious carbon tax to address other pressing issues.

          Number 3, I think we need a serious reform of the federal, state, and local civil service systems. I think near guaranteed long term ownership of any job in modern society is not a good idea. There should be a lot more people who work part of their careers in government and part in the private sector, and governments should have a lot more room to hire, fire, and shift around to respond to rapidly changing circumstances. In government, there are too many barnacle clinging to the hull of the ship of state.

          Number 4, the long term pension issue would be partly, maybe mostly solved by having people do shorter term stints in government. It would force everyone to have portable pension plans not tied to their employer. In the short term we are obligated to pay for the contracts we made.

          • Steve Plunk

            A federal bailout only shifts the responsibility to subsequent generations. Is that morally sound? And raising taxes could do more harm than good. Not to mention the people have made it plain they will not continue to have taxes raised only to see government waste the money in new ways. I agree civil service (it’s not service but a job) needs reform. We pay too much and offer too much in benefits for the return we get. Pension reform is necessary but we knew that 30 years ago, politicians don’t have the stones, how do we get it done now?

            In my opinion this mess is almost entirely the fault of the politicians and the public sector employees. The responsibility of fixing it rests squarely on them. The boomer generation has essentially pillaged the country and now wants to blame others for the mess they have caused. My problem is that it’s going to cost me as well. But I would sure rather pay now than later. Fewer government services is our way out. Get back to the traditional roles and services of government.

          • eagle eye

            Uh, aren’t you a boomer?

            and:

            “Fewer government services is our way out.”

            Would you care to detail which state services you would be willing to dispense with?

          • Anonymous

            “Not to mention the people have made it plain they will not continue to have taxes raised only to see government waste the money in new ways.”

            Have you forgotten the Measure 66/67 election in January? Or do you think they were voting to “waste” the money?

          • valley p

            “Is that morally sound?”

            It depends on how the borrowed money is used. If it wins a war that preserves the freedom of the next generation then yes. If it builds an infrastructure they will use then yes. If it raises the education level of their parents, who then are able to earn more and take better care of them, then yes. If it prevents the economy from going into a multi-year depression then yes. Every generation of Americans has inherited a public debt. And ever generation has been economically better off than the one before. Future generations, if they are sufficiently more productive than the current one, will be more able to pay back the debt. You do the math.

            Don’t you ever borrow money for your business Steve? There is nothing wrong with borrowing per se. Its all about what you do with it. If you squander it then it is not a good thing. If you buy better, more efficient trucks, then it pays off.

        • ee

          I and others have posted ideas here. Below are seven ideas, a nice number.

          1) Offer “buyouts” to Tier I PERS members. Some would take this, and it would relieve PERS of the 8% obligation in the future.

          2) Along the lines of (1), offer a defined contribution plan to Tier I members in lieu of the defined benefit PERS plan. This would have much the same benefits as (1).

          I believe Dudley has talked about these two. At least one of them has been in use in the public universities for some time, I believe.

          3) Use total compensation in setting and bargaing future pay packages.

          4) Explore the possibility (legality) of reducing the 8% PERS guarantee for Tier I.

          5) Explore outsourcing/privatization of some state functions. Some state agencies already do this.

          Along harsher lines:

          6) Make strikes by public workers illegal in Oregon.

          7) Make do with fewer public workers. As has been pointed out here, the long-term structural deficit in the state budget is probably 10-20%.