If We’re Gonna Do It, Do It Right
Bailing out the states.


South Carolina governor Mark Sanford has done yeoman’s work in warning against the dangers of the state-and-local-government lobby’s proposals for a federal bailout. Despite Sanford’s admonitions, however, in all likelihood, when Congress enacts its bailout (or “stimulus”) bill, it will include substantial funds for these governments.

Given this, the objective now is to separate the merely dumb from the horrendous — and, perchance, to inject seriousness and long-term perspective into the debate.

High on state and local governments’ wish list is federal support for infrastructure investment — roads, bridges, and port expansions, but also “green” boondoggles such as energy-efficient buildings and renewable-energy projects. While most economists believe that such investments require far too much lead time to have the desired immediate stimulus effect, the states claim to have $136 billion of infrastructure projects “ready to go.”

That figure is wildly inflated, and there’s no assurance that the federal dollars would even go to the small-scale, humdrum projects that actually could be started promptly — as opposed to, say, futuristic windmill parks in the middle of nowhere. Never mind, though: Federal money will be spent, and everyone agrees that it ought to be spent now if it is to do any good.

To that end, a proposal: Exempt all federally funded projects from federal requirements for environmental assessments, the Davis-Bacon Act, and minority-contracting “goals”; insist that state and local governments suspend their own parallel requirements; and exempt the projects from judicial review. It’s been done before for projects that Congress deemed truly necessary, such as the Trans-Alaska Pipeline. If there’s an argument for cost- and delay-inducing requirements, let’s hear it. Politicians who insist on this dross should be asked what they are actually trying to produce — a spur to investment, or litigation opportunities for the Natural Resources Defense Council.

Also high on the states’ list, and genuinely atrocious, is a demand for increased Medicaid funding, to the tune of at least $40 billion. Under that program, the federal government already pays between 50 percent and 75 percent (sometimes more) of state health-care expenditures on populations and services covered by the states’ programs. The nasty economic incentives are obvious: In good times, states rapidly expand Medicaid services, since each dollar “attracts” a federal match. Then, in tough times, states are loath to cut services, since each cut means a “loss” of federal dollars. In June 2008, under already-weakened fiscal conditions, almost half of all states still proposed to expand Medicaid.


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