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Beware of a federal bailout of states
Lisa Nelson.jpg
Lisa B. Nelson

A year after the first COVID-19 shutdown, President Biden signed the American Rescue Plan Act - the $1.9 trillion coronavirus legislation that truly has little to do with coronavirus at all. 

The third of its kind since 2020, the bill was proposed with the intention to provide COVID relief and bailout states with federal funds. But in this case, the third time isn’t the charm as once again, federal decisionmakers have turned to quick fixes that create long-term issues rather than long-term solutions. 

Our recent history teaches us a federal bailout of the states threatens to further harm taxpayers, federalism and ultimately the states themselves. This third state bailout, with less than 10% going to COVID relief and only 1% going to vaccine distribution, proves that this will be the case again. 

Since the first discussion on federal bailout of the states began in 2020, hundreds of state lawmakers addressed the policy problems with a federal bailout. State leaders were concerned with the federal “solution” prescribed to help them, because a state bailout wrongly rewards those who have made poor financial decisions at the expense of prosperity states. 

In 2020, state and local governments already received hundreds of billions in CARES Act funding. In many states, much of the funds remain unspent. My home state of California has a $25 billion surplus, and will now receive $42.63 billion more. Giving more only incentivizes more fiscally irresponsible decision making and will unjustifiably punish the financially responsible states. 

We’ve seen the consequences of federal bailout before. In 2009, state legislators voiced concerns over the strings attached to federal dollars during debate on the American Recovery and Reinvestment Act (ARRA), acknowledging the costly consequence of accepting a bailout. Federal aid will unfortunately always come with strings attached and will more than likely only lead to increase in spending and higher state taxes. 

Today, though, our national debt lingers at almost three times what it was in 2009. The stakes are too high to continue a cycle that promises quick fixes from the federal government. Quick fixes turn into long-term issues, and if we continue to dig the hole so deep we may never escape. We should instead rely on fact and experience, and learn from our history. 

The only real way to make productive, responsible decisions for our states is for our states to practice fiscal discipline. It is one of the more difficult roads to take, but to bring true relief to our communities, we should look to policy solutions in the prosperity states that lead the way in fiscal responsibility. Prosperity doesn’t come from luck, but from the difficult and necessary work to balance state budgets and keep spending in check. 

Organizations like the American Legislative Exchange Council release annual publications, like Rich States, Poor States, ranking the states’ performances in policy variables that have proven to build financially resilient prosperity states. Many of the states at the top of this ranking, such as Utah and Wyoming, find themselves in the best position coming out the other side of the pandemic. Practicing fiscal responsibility in state policy solutions is proven to build state competitiveness in both times of prosperity and turmoil. 

Nearly a year ago, over 200 state lawmakers and nearly 1,500 state leaders and activists signed a letter to raise policy concerns with a bailout - and Congress noticed. 

The fight is not over, and voices are still needed to commit to fiscal responsibility in the states. Encourage your state lawmakers to choose solutions that build true prosperity in your state.

Nelson is the chief executive office of the American Legislative Exchange Council, an organization bringing state legislators and stakeholders together to develop public policy beneficial to the free market and individual liberty