A potential fiscal crisis has been percolating for some time now.  Heretofore, it has been simmering just below the surface like an inactive volcano overdue to erupt.  It has been superseded by other more pressing matters, but I believe it is about to burst into the forefront.  It is the substantial differences in fiscal health among the various states.

Some states are in serious financial straits.  In most cases, their difficulties predate the advent of the Coronavirus, but the unanticipated substantial expenses they have been forced to incur to fight it have exacerbated their financial situation.  Their only hope to attain solvency appears to be a federal bailout.  This may become a central issue in the next Rescue Plan, which Congress will likely address as soon as the House Dems return to DC from their “vacation.”

As denoted by “24/7 Wall St” the underlying causes have resulted from the poor management of prior and current administrations.  Some states have been profligate and poorly managed for many years.  They are now saddled with huge debt, primarily due to pensions owed to retired public and union employees.

According to “The Hill,” these states will be seeking an aggregate bailout of in excess of $500 billion.   For example, the unfunded liabilities of IL’s state pensions is an astronomical $137 billion.  I don’t see how it can ever meet that obligation on its own.  Declaring bankruptcy may be a realistic option, but, then, what will happen to the pensioners.

Another example is NY.  Its budget deficit for the coming year is estimated at $6.1 billion.  Moreover, its tax base is declining at an alarming rate as middle class and even upper class taxpayers have been relocating to states with lower or no state taxes.  These are just two examples of many.  Other states with a heavy burden of debt include NJ, MA, and Kentucky.

Naturally, the states in good financial condition are objecting to the idea of a bailout.  Some of these states are AK, SD and NE.  For the most part, the low debt states don’t mind reimbursing expenses related to the CV, as it is viewed as an unforeseen calamity, but they hold a dim view of a federal bailout for pre-existing debt.

Normally, Americans are generous and forgiving.  They don’t mind helping others who are in need through unforeseen circumstances, e.g. natural disasters.  But, they do object to helping others whose problems have been caused by their own profligacy.  They realize that any such funds will ultimately come out of their pocket.  They resent having to bail out the states that, in their view, have been poorly managed, while they were careful with their money.  Some even view it as a form of socialism, which is the “kiss of death.”

Before you criticize and scoff at that notion, consider the following two examples, which I feel illustrate the situation.

  1.  Farmer A and Farmer B

Farmer A and Farmer B are neighbors.  All year long, Farmer A works his land diligently.  He spends long hours planting, tending and harvesting his crops.  He husbands his excess cash carefully for a “rainy day.”  Farmer B is not the least bit diligent.  He is lazy.  He spends much of his time “hanging out” or visiting friends in town.  He blithely borrows money to fund his extravagant lifestyle.  At the end of the year, Farmer A has a bumper crop and sells it at a good price.  He has a goodly surplus left to see him through the winter and deal with any unforeseen circumstances.  Farmer B’s crop is very poor.  He does not have enough to see him through the winter.  Moreover, he is heavily in debt, having spent lavishly without serious regard for the future.  What does he do?  He asks Farmer A to help him out.  Do you think Farmer A would be willing to give Farmer B some of his surplus crop and money?  Should he?

2.  Student A and Student B

Students A and B are in the same class at school.  They are both assigned a term paper due at the end of the year.   Student A diligently works on the paper during the year, forgoing parties and other social events.  He writes a really good paper.  Student B does little or no research.  He enjoys parties and social events throughout the year.  As the due date approaches he realizes he is in trouble.  He asks Student A to give him some of his research notes so he can write his paper.  Do you think Student A should help out Student B or not?  Would it be fair for him/her to do so?


In my view, these illustrations are similar to the above situations regarding the states.  Farmer B and Student B are akin to the profligate states I described above.  I do not think it is equitable or appropriate for the states illustrated by Farmer A and Student A to, in effect, pay for the misdeeds of the others.

I believe we should all be responsible for our own actions.  The US is not a socialist country.  Our nation’s economy has been and is based on capitalism, initiative, free enterprise, hard work, and self-determination.  I realize that some of you may disagree with me and think my reasoning is callous.  That is your right.  The issue is worth debating.  I welcome your thoughts.

At the end of the day, this issue is a potential powder keg.  As is often the case, the situation and its solution is far more complex than it appears.  How we deal with it will have a profound effect on our nation prospectively.


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