The Corner

Economy & Business

A Little More on State Aid

(Pixabay)

In my piece this morning, I argue that Congress should provide some aid to states as their tax revenues tank from the coronavirus shutdown, but that that aid should be conditioned in such a way as to prevent its being diverted to the treatment of what we might call “preexisting conditions,” meaning the states’ unfunded pension liabilities — a very big problem that has nothing to do with the epidemic and was created entirely by political decisions that were bad and irresponsible and known to be bad and irresponsible by the people who made them.

How might that work?

One idea I have kicked around is structuring state aid as a special lending facility, e.g. as a 20-year loan that is forgivable in annual installments on the condition that the beneficiaries make their actuarially required contributions to their pension systems — miss a year and the loan gets called in. That has two problems: One, it doesn’t do anything about the existing unfunded liabilities, which are going to require states and beneficiaries to renegotiate the terms of pension plans, which is true even in those situations in which the law forbids the reduction of benefits — the law can say whatever the lawmakers want it to, but the money isn’t there. Two, some of my more legally minded colleagues think that this sort of arrangement might run into a problem under the anti-coercion doctrine spelled out in NFIB v. Sibelius. I’d be interested to hear what everybody else thinks about that.

Leaving the states to deal with the coronavirus fallout on their own is probably not the best policy. But money is fungible, and using the epidemic as political camouflage to bail out poorly run states (and these are not exclusively Democrat-leaning states) from the result of decades of knowingly irresponsible decision-making is bad policy, too. This is a matter of looking for the best bad option.

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