LaHood Op-ed: Federal aid to states should protect taxpayers, encourage reforms
In a letter to Illinois’ members of Congress, Gov. J.B. Pritzker asks Congress to rally for more help, warning of doom and threatening schoolchildren if the federal government doesn’t prop up our financially broken state. Five months after Democrats in the state petitioned members of Congress for more than $41 billion in federal bailouts, the nation’s richest governor has picked up the cry.
Pritzker acknowledges, “I have never pretended local and state governments don’t need new solutions.”
But rarely do we see Pritzker or the lawmakers in charge in Springfield look at their own behaviors to figure out how to secure Illinois’ financial position and guarantee funding for core services people here depend on.
There’s a lot of head-scratching in Congress when people consider Illinois — and sending more federal dollars its way. Why should federal taxpayers bail out Illinois’ pension system, which was circling the drainpipe for decades before COVID-19 hit? Why should we prop up a bloated state budget, which Illinois politicians haven’t worked to balance in 20 years?
Another federal aid package looms but has failed to materialize as both sides sit on the extremes, with one camp favoring $1 trillion in unrestricted funds to state and big-city governments and the other questioning whether to bail out bad actors at all.
The best answer sits somewhere in the middle, leaving open the option of providing aid while ensuring reforms so feckless states don’t throw good money after bad actors.
The Taxpayer Protection Act, being filed Thursday in Congress, guarantees any future state and local government aid must flow to the services people depend upon, not be squandered on debt and pension spending that don’t support an economic recovery or a lifeline for those who need it. This legislation creates the Taxpayer Protection Program and allows for federal aid to flow to states, localities, tribal governments and territories. It also limits the amount of money they can receive to actual experienced revenue losses.
To protect taxpayers from financial mismanagement, this legislation structures federal aid to states as forgivable loans contingent on sound pension funds, truly balanced budgets and rainy-day fund protections.
Many states meet these best practices already. Thirty-nine states have truly balanced budget requirements. Forty-two states had sufficient rainy day funds before COVID (about 5% of budget saved). Forty-one had pension funding ratios above 60% in 2018, which can serve as a proxy for sound funds.
All pension systems should be built on sound funding plans with benefit structures that help protect taxpayers from risk. The Taxpayer Protection Program also requires mandatory benefit reform in states where pension systems cannot be fully funded in fewer than 25 years without increasing taxpayer costs, or else TPP loans must be repaid at an interest rate commensurate with each state’s credit rating. It prohibits federal funds from being used for pensions or other debt service.
Illinois, which hasn’t had a truly balanced budget in two decades, is a case study for the Taxpayer Protection Program. It makes federal aid contingent upon true balanced budget requirements and realistic accounting, ensuring state lawmakers cannot hide deficits with accounting gimmicks or rack up excessive operating debt.
Some states have been able to weather the current economic downturn because of responsible planning. Going into the downturn, Arizona had a rainy day fund and budget surplus worth a combined $1.7 billion, enough to absorb a 15% revenue shortfall without making cuts. By comparison, Illinois’ rainy day fund was worth about $1.19 million in March, which could fund state government for about 15 minutes. The Taxpayer Protection Program places restrictions on when lawmakers can make withdrawals from rainy day funds and procedures for making automatic deposits during growth years.
There are legitimate calls for state and local government aid, and then there’s Illinois.
Illinois’ spending on pensions has grown by over 500% in the past two decades while spending on social services for the poor has dropped by one-third. Requests to throw more money into that black hole cannot solve the problem, but real reform can.
We can’t support a system that prioritizes spending on debt and pensions over people.
That’s why we stand behind a plan that ensures a rescue for systems that truly need it, while it protects taxpayers in mismanaged states and the nation from those willing to sink them under the same failed status quo.
These policies are common sense to responsible adults: Don’t spend more than you earn; save for a rainy day and for old age. They can carry us beyond a recovery and on to a better future in Illinois.
Originally published by the Chicago Tribune:Federal aid to states should protect taxpayers, encourage reforms
By Congressmen Darin LaHood (IL-18) and Adam Schuster