3 Reasons Why States Shouldn’t Get a Congressional Bailout

Illinois State Senate President Don Harmon sent a letter April 14 on behalf of the Illinois Senate Democratic Caucus to members of Congress requesting $40 billion in federal funds for the beleaguered state.

Although the letter comes under the guise of unprecedented COVID-19 disruptions, the purposes for which Illinois and other states seek additional federal funds are anything but unprecedented. Opening the floodgates to federal taxpayer dollars to cover states’ self-imposed fiscal woes would only lead to even further fiscal recklessness.

Here are three ways that additional federal funds to states won’t help fight COVID-19 and will likely hurt federal taxpayers and states’ budgets in the long-run.

1. Congress already provided enough COVID-19 relief—states want unfettered funds. The Illinois letter makes clear that the state doesn’t need any more money to combat COVID-19. And, given the possibility that states are having to devise new spending related to COVID-19 just in order to use up the $150 billion they’ve already received, it’s clear that states have enough funds to combat the virus.

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States have already received an unprecedented amount of federal funding, including both direct and indirect support.

For starters, the federal government has directly provided:

• $150 billion direct grants for costs related to COVID-19.
• $500 billion in short-term loans to municipal governments, including an estimated $35 billion in loan defaults/forgiveness.
• $45 billion in Federal Emergency Management Agency disaster funds.
• $30 billion for schools.
• $34 billion for mass transit, community development block grants, child care, and election preparation.

But state and local governments will also benefit significantly from the funds that flow through to their businesses and residents. By keeping more workers employed, these programs will reduce states’ unemployment and other safety net program costs, and by raising income levels, they will result in higher income and sales tax receipts for states. Some of that indirect funding includes:
$377 billion in small business relief, most of which funds payrolls.
$293 billion in checks to individuals.
$268 billion in increased unemployment insurance benefits.

States have already received plenty of federal funds and aid for COVID-19. It is true that restricting the spending to COVID-19 costs has caused some states to squander the funds instead of returning them to the federal government (such as providing temporary pay raises and bonuses to public-sector workers, even as tens of millions of private-sector workers have lost their jobs and paychecks). But Congress did not intend for federal taxpayers to absorb states’ revenue losses or pay for spending unrelated to COVID-19.

A better alternative to granting states additional funds with fewer restrictions would be to remove existing unfunded federal mandates.

2. The money would reward decades of reckless mismanagement, including bailing out unfunded pensions. COVID-19 measures have been in place now for...

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