Nicole Gelinas of the Manhattan Institute published an excellent op-ed in Investor’s Business Daily earlier this month on a more sustainable approach to aiding state governments during economic downturns:

The problem with most of last year’s $229 billion in stimulus aid to the states is that it allowed them to maintain an unsustainable decades-old imbalance for an extra year: ever-rising labor costs, at the expense of infrastructure investment.
Federal lawmakers should stimulate states, cities, and towns to correct this imbalance. Congress should offer a carrot: $200 billion now — for more than $200 billion in public — sector savings and investment later.
To get the cash, state and local governments would address the first half of the imbalance: out-of-control public labor costs. They could commit to wage freezes and asking public workers to pay more for health care, where savings will compound.
More important, states can revamp public-worker benefits for the newly hired. Public employers should close the generous pension plans that allow workers to retire in their 40s and 50s with a guaranteed lifetime income. New public-safety and physical-labor workers should work longer before retiring, and new civilian workers should contribute to private-sector-style 401(k) plans.

So far, so good. And Nicole, one of the best and most creative policy thinkers on the right, isn’t alone in backing this idea. We’ve discussed Christopher Edley Jr.’s related concept of federal “advances” on transfers. Because states already receive federal matching grants, Edley proposes increasing grants in lean years and decreasing them in fat years, to achieve balance over the business cycle. The difference is that Nicole’s approach compels the states to make the necessary structural reforms ahead of time, thus avoiding the danger that cash-strapped states and public sector workers will use their political leverage to wriggle out of the commitment.

In a similar vein, William Galston’s agenda for sparking a jobs revival include a markedly similar idea:

Forced retrenchment at the state level will weaken federal government efforts to stimulate growth and job creation. On the other hand, many states exacerbated their problems by making unsustainable promises during flush times, and it is understandable that many citizens and elected officials are reluctant to subsidize what they regard as short-sighted profligacy. To square this circle, the federal government should initiate conditional revenue-sharing, extending bridge loans to states with the expectation that these borrowers would enact binding plans for structural fiscal reform that met targets specified in law. States that do so would have their loans converted into grants; those that don’t would have to repay them, with interest.

And of course Galston was a leading New Democratic theoretician, thus suggesting that there might be room for bipartisan consensus on demanding structural reforms from state governments.

It’s vitally important that fiscal conservatives stake a claim to the center ground. “Cash for cuts,” by drawing on the logic of President Obama’s Race to the Top (or RTT) initiative, can help.