Money for the States?

I haven’t looked at the merits of federal grants to state governments:

PHILADELPHIA (Reuters) – Governors of five U.S. states urged the federal government to provide $1 trillion in aid to the country’s 50 states to help pay for education, welfare and infrastructure as states struggle with steep budget deficits amid a deepening recession.

The governors of New York, New Jersey, Massachusetts, Ohio and Wisconsin — all Democrats — said the initiative for the two-year aid package was backed by other governors and follows a meeting in December where governors called on President-elect Barack Obama to help them maintain services in the face of slumping revenues.

Gov. David Paterson of New York said 43 states now have budget deficits totaling some $100 billion as tax revenues plunge.

“It’s clear that the federal government needs to step in and jump-start the economy,” said Gov. Deval Patrick of Massachusetts.

and I don’t think the idea should be dismissed out of hand. Block grants to the states would probably make more effective stimuli than some of the proposals I’ve seen floating around. But why shouldn’t some oversight and preconditions be part of the deal, too?

For one thing I don’t think that the federal block grants should be used to offset shortfalls in state revenues that would be used for normal operating expenses. The purpose of grants should be providing fiscal stimulus rather than political cover for state legislators.

The states need to live within their means and if that requires renegotiating contracts, wage freezes, or tax increases so be it. It would be bizarre if the state governments were giving their employees raises while every private company in the country laid off employees.

If the states want payday loans, shouldn’t they be put through a wringer at least as tough as whatever GM and Chrysler go through? I’d really like to see the states submit business plans under which they achieve solvency by some date certain. Something that takes into account reasonable expectations and recognizeable human behaviors. And the laws of physics. Conforming to established accounting standards would be nice. Or how about a Sarbanes-Oxley for states?

Here in Illinois short of amending the constitution the state government’s figurative hands are pretty well tied. Automatic cost of living pay raises have constitutional force as do pension payments and other forms of state employee compensation.

Tax increases are the state’s only recourse and the state’s legislators have been at an impasse over tax increases. It’s something that Illinois needs to resolve by the processes of representative democracy rather than through a federal handout.