Many of the founders thought that the STATES would be laboratories of democracy. But perhaps that lab experiment has gone wrong. Disclosure I have never worked at the STATE level but of course have from time to time dealt with STATE level officials. Ihave lived most of my 68 years in Virginia.
First let’s ignore the most fundamental incompetence of the STATES. Taxation and financial regulation. They [the STATES] probably would argue otherwise. And of course I point to federal disaster relief and even the NFIP [National Flood Insurance Program] as a fundamental bailout of the STATES for their negligence in flood plain management, zoning, and building code enforcement. In fact I could argue that at least the majority of federal programs are in existence largely due to default of the states. Many state legislatures work only two or three months every other year. This allows the lobbyists to feast on that short schedule. But ignoring budgeting, taxation, and other programs, functions and activities the almost 40 million STATE and their local government employees now are claimants on national resources. They also are a resource provider. In 1940 before WWII there were fewer than 5 million STATES and their local government employees.
So looking solely at the STATES fiscal landscape review the following:
US States Err Seriously In Their Revenue Projections
Stan Rosenberg, Wall Street Journal, March 1, 2011
U.S. state budget officials have recently become more optimistic about their revenue projections, but a new study found that they may want to re-think their views. States actually have been making serious errors in estimating their revenue in tough economic times, a development that has major implications for policy makers trying to grapple with severe budget shortfalls. That is the conclusion of a new report released Tuesday by the Pew Center on the States and the Nelson A. Rockefeller Institute of Government, which said that half the states in the U.S. overestimated their revenue projections by at least 10.2% in fiscal 2009. That equated to an unexpected shortfall of almost $50 billion in personal income-tax, corporate income-tax and sales-tax revenue.
Are we talking basic honesty in governance here? Pension funding at the STATES and their local levels is scandalous. TIA-CREF was one result of pension incompetence at the governmental level below the federal.
So here is my solution: A one time solution. Completely federalize both unemployment compensation and Medicaid. And allow the STATES and their local governments to issue one time bonds for all of their current debt not currently funded with the federal government as purchaser at the same rate of interest on these bonds as that given the banks–currently almost zero percent. As the percentage charged banks increases then the interest rate on these federally owned bonds would increase. This would also give the STATES and their local governments an incentive to properly regulate and investigate the FIRE sector of the economy that is currently within their power. The FIRE sector of course being Finance, Insurance, and Real Estate.
Well hoping this suggestion makes sense and would be of interest to have comments. By the way currently much of the current anti-recessionary federal spending is being almost fully offset by STATES and their local governments budget cutting. This destroying k-12 education and also the Public Safety arena including police, fire, EMT, EM and Public Health. This has to stop.
See also on Medicaid:
“Cash-Strapped States Target Medicaid To Close Budget Gaps
Romy Varghese, Wall Street Journal, March 2, 2011
Cash-strapped states are taking aim at Medicaid, the health-care program for low-income people, as stubbornly high employment is pushing an increase in enrollment and costs. Trying to cut such a large expense sends a good signal to municipal bond holders, analysts said, since health care is second only to education in state spending, according to one estimate.”