Stimulating a Bad Idea
With the news about
Bear Stearns, Fannie Mae and Freddie Mac, and Lehman Brothers, we saw
some good examples of financial irresponsibility. But we do not need to
look far for such an example. Here in Ohio, Governor Ted Strickland and
the General Assembly have produced a budget mess that was entirely
predictable. And, much like the financial sector, they now want someone
else to bail them out.
Like many states, Ohio is facing budget problems. Also like many states, Ohio has expanded its Medicaid problems. Since Medicaid is partially funded by the federal government, though, the state must ask permission to change its program and the expansion has yet to be approved. Given Ohio's $733 million budget shortfall, this would strike many as a good thing.
Governor Ted Strickland does not see it this way, though. While he has ordered some state agencies to cut their spending by almost 5%, the governor is still pushing the federal government to approve Ohio's Medicaid expansion plan. Considering that Medicaid spending consumes around 40% of the state budget, these actions are working at cross-purposes.
But never fear. The governor has a plan - make someone else pay for it. He wants the federal government to give the state more money to pay for Medicaid as part of an "economic stimulus" package. While the first stimulus package mailed out checks to taxpayers (and some people who didn't pay taxes), the stimulus legislation moving its way through Congress would increase spending on certain welfare programs and give more money to state governments.
There was little economic rationale behind the first stimulus package. Simply giving checks to people does nothing to help the economy. There is even less economic sense in the current stimulus package. It is a bill designed to reward special interest groups who are using the economic downturn as an excuse to receive more taxpayer dollars to fill their coffers.
State officials like Governor Strickland compose their own special interest groups. They want government to provide a variety of services, but they want someone other than state taxpayers to fund them. Essentially they want to give state residents something for nothing. It's a neat trick if they can pull it off.
Unfortunately, many federal officials want to help them with this fiscal sleight-of-hand. Giving federal funds to states in order to help them avoid shouldering the true costs of their expensive state programs is an integral part of the second stimulus package. They can do this because, unlike states, the feds do not need to balance their budget every year. They can simply spend more money and worry about paying for it later. Or, more accurately, future taxpayers can worry about paying later, which will be after the politicians currently in office are enjoying retirement.
There is no need to help states like Ohio prop up their financial house of cards, though. The current fiscal mess was easily predicted. In fact, the state went through something almost identical with the recession earlier this decade. Tax revenues fell while spending on social programs like Medicaid ballooned.
So how did state politicians respond when there were relatively good economic years between the two economic downturns? They expanded these state social programs. Even when there were signs of economic trouble last year the Medicaid expansion was approved unanimously by the General Assembly.
It is one thing to be ignorant of history. It is quite another to willfully ignore the recent past. Governor Strickland and the legislators who kept spending in light of an almost-guaranteed decline in tax revenues now want someone to bail them out. They have failed in their duty to be good stewards of taxpayers' money but do not want to face the consequences of their own actions. It is too bad that they are likely to receive positive reinforcement from D.C. for their fiscally irresponsible ways.
Marc Kilmer is a policy analyst with the Buckeye Institute for Public Policy Solutions, a research and educational institute located in Columbus, Ohio.
