News & Politics

Western Pact States Demand $1 Trillion Coronavirus Bailout for Past Budget Mistakes

A protester holds a sign in front of the pier Sunday, May 3, 2020, in Huntington Beach, Calif. In Orange County, where beaches were singled out for closure by California Gov. Gavin Newsom during the coronavirus pandemic, crowds were sparse as lifeguards and police patrolled and issued warnings to people to stay off the sand. (AP Photo/Marcio Jose Sanchez)

On Monday, the states that formed the West Coast Coronavirus Pact went begging to the federal government for a massive $1 trillion bailout of their bloated state budgets. The states of Washington, Oregon, California, and later, Nevada and Colorado joined in a pact of questionable legality last month to coordinate their responses to the Chinese Communist Party (CCP) pandemic and the gradual reopening of their economies. Now, the pact members have sent the bill for their failed state budgets to the federal government.

The letter reads, in part:

We deeply appreciated the quick financial assistance you provided workers, small business people and those who have been displaced by this crisis. But now, however, our states will be forced to make deep cuts to programs that help those same individuals without similar relief efforts for state and local governments. Even states that began the year in a strong fiscal position are facing staggering deficits amid growing costs of responding to the crisis. With unemployment projected to surpass that of the Great Recession, we are facing unprecedented and ongoing economic challenges.

Without federal support, states and cities will be forced to make impossible decisions – like whether to fund critical public healthcare that will help us recover, or prevent layoffs of teachers, police officers, firefighters and other first responders. And, without additional assistance, the very programs that will help people get back to work – like job training and help for small business owners – will be forced up on the chopping block.

That’s why we are respectfully, and urgently, requesting $1 trillion in direct and flexible relief to states and local governments. Though even this amount will not replace the decline in revenue that we forecast, it will make a meaningful difference in our ability to make-up for COVID-19 revenue losses. This aid would preserve core government services like public health, public safety, public education and help people get back to work. It would help our states and cities come out of this crisis stronger and more resilient. [emphasis added]

Of course, one could come up with any number of definitions for a “strong financial position.” Nevertheless, the tacit admission here is obvious: many of us governors and legislators failed to plan for a rainy day, we’ve made our constituents reliant upon government programs, and we spent all our money.

Essentially, we smoked all the product, and we need more to sell to make up for it.

Folks on Twitter did not respond positively to the news of this request, as one might imagine.

Just a quick reminder that none of these five states has fully funded their state employee pension systems.

Good question. Colorado and Nevada have partially opened, but Oregon, Washington, and California still have most of their onerous lockdown orders in place, with difficult benchmarks to achieve in order to reopen.

Many have argued that states don’t deserve bailouts for fiscal mismanagement. A report at City Journal notes:

Even before any recession actually hits, states are tapping their reserves to pay for resources in the fight against Covid-19, meaning that they’ll have even less of a budget cushion should an economic downturn become severe. Washington State legislators, for instance, authorized drawing $200 million from their surplus fund for added health-care spending and to help pay for looming unemployment claims. Georgia has taken $100 million from its surplus fund to finance the coronavirus battle, and Maryland legislators have authorized Governor Larry Hogan to use $50 million for the same battle. The problem is that prior to the crisis, states collectively had only about $70 billion in these funds—enough to run state government for just eight days, on average. A few find themselves in even worse shape. A report by the Volcker Alliance, a budget watchdog group, estimated that Illinois has just a few million dollars in its fund, enough to barely cover a few minutes of budget spending.” Pennsylvania had just the equivalent of 1 percent of its budget in reserves.

Some states have designed their tax structures to collect a disproportionate share of revenue from upper-income residents. That makes their receipts volatile, especially during turbulent times, when so much of the income of high earners comes from capital gains, which have vanished suddenly. Income tax accounts for 70 percent of California’s general-fund revenue, and the state’s top 1 percent of earners pay almost half of all taxes. Among those earning $500,000 or more a year, capital gains account for 25 percent of their income. The state bases its current budget projections on the S&P 500 stock index trading around 3,120—but the index is currently at about 2,304, and instead of reporting fat gains, many of those tax filers may claim large capital losses, which will reduce their tax payments.

Meanwhile, Oregon and Washington rank second and third, respectively, in per capita spending. Washington spends almost $16,000 per resident per year, while Oregon spends over $18,000 per person per year. Notably, all five states in the pact also have substandard credit ratings.

Given the dismal state of fiscal management in these five states, it seems they’ll have something of an uphill battle to make the case that they deserve a federal bailout for prior spending decisions.

Jeff Reynolds is the author of the book, “Behind the Curtain: Inside the Network of Progressive Billionaires and Their Campaign to Undermine Democracy,” available now at www.WhoOwnsTheDems.com. Jeff hosts a podcast at anchor.fm/BehindTheCurtain. You can follow him on Twitter @ChargerJeff.

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