Lawmakers Oppose Federal Bailout for States

ALAN FRAM | Associated Press

WASHINGTON (AP) – Lawmakers of both parties expressed opposition Wednesday to having federal taxpayers help state and local governments cope with widespread budget problems, underscoring the impact that Washington's crushing budget deficits are having on the appetite that Republicans and Democrats have for such aid.

"The era of the bailout is over," Rep. Patrick McHenry, R-N.C., told a House hearing on the debt problems facing scores of states and municipalities around the country.

At the same hearing, Rep. Mike Quigley, D-N.Y., said states need to erase their deficits and face up to their long-term obligations such as pensions for government workers on their own. He also criticized a proposal some conservatives have made that Congress pass a law allowing states to reorganize their debts by declaring bankruptcy, an idea that opponents say would send state borrowing costs soaring.

"I don't think either one of those options can work or are optimal," Quigley said.

McHenry chairs a subcommittee of the House Oversight and Government Reform Committee that oversees federal bailouts, which was holding a hearing on the issue. Quigley is the top Democrat on that panel.

Washington has pumped billions of dollars to state and local governments during the past two years from President Barack Obama's $814 billion economic stimulus program. But that aid is ending, and states and municipalities face huge projected deficits for this year and next.

For the coming fiscal year, the 50 states face combined expected deficits of $125 billion, according to the liberal Center on Budget and Policy Priorities.

McHenry blamed the wide-ranging budget problems chiefly on states' huge pension obligations, citing "the looming burden of paying out trillions of dollars in lucrative public sector union pension and health care benefits that come at the expense of taxpayers."

He also blamed excessive spending and falling tax revenues caused by the economic downturn, adding, "Reckless spending fueled by bottomless borrowing and guaranteed by endless bailouts is an unsustainable course."

Democrats argued that most states' budget problems are short-term, caused by the recession and its devastating impact on local tax collections. Long-term imbalances are faced by six to eight states, Quigley said, including his own state of Illinois, which face major problems caused by rising health care costs and underfinanced pension plans.

"This is why a one-size-fits-all approach, like bankruptcy for states, could do more harm than good," Quigley said.

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