Bailouts or Bankruptcy for State and Local Government Pension Problems?
David C. John /
The year 2011 will be the year of decision for underfunded state and local governments with pension and debt problems. The end of federal money from the stimulus package that many cities and states have used to prop up their finances, combined with the outsized cost of meeting their pension promises, will force a growing number of these governments to act.
The immediate reaction for many will be to try to pass the cost onto the federal taxpayers in the form of a bailout, but Congress should strongly resist any such move. While the troubled state and local governments would promise to mend their ways and characterize the bailout as “time to work out the problem,” many of them have long histories of fiscal mismanagement and would soon revert to their old bad habits. A federal bailout would have no more long-term effect than taking away a shopaholic’s old credit cards while new ones are already in the mail. (more…)