Letter to House and Senate Leadership - Rep. Banks Leads RSC Task Force Letter Urging Against Federal Bailout for State and Local Governments

Letter

Dear Speaker Pelosi, Republican Leader McCarthy, Majority Leader McConnell, and Minority Leader Schumer:
We write to express our opposition to recent proposals to send direct federal funding to state and local governments
without restriction for purposes unrelated to fighting the COVID-19 pandemic. Conservatives understand that the
proper role of the federal government is to protect its citizens rights to life, liberty, and the fruits of their labors.
Taking resources from current and future Americans and redistributing it to state and local governments to subsidize
their mismanaged budgets would exceed this proper scope.
Such bailouts would fail to directly address the immediate threat of the pandemic and carry with them a number
of perverse incentives and consequences. For instance, they would reward states that have mismanaged their
budgets, incentivize future bailouts and reliance on federal funding, invite a bailout of underfunded pensions, fail
to push states to enact spending reforms, and feed the Left's ultimate goal of consolidating power in the federal
government rather than empowering states. Many of the states calling for such a bailout have some of the highest
tax rates and most underfunded pension and rainy day funds. New York and Illinois, for example, are ranked 44th
and last for their rainy day funds. New Jersey and Illinois have the highest levels of unfunded pension liabilities
per resident. Moreover, at a time when our federal deficit is now likely to surpass $4 trillion, a debt-financed state
bailout would further burden our seemingly insurmountable federal debt, crowd out access to capital for American
people and businesses, and increase calls for economically harmful tax increases in the future.
A direct federal bailout would also ignore the fact that state and local governments already have a variety of
fiscal options available to ensure that they can continue to provide essential services to their citizens while also addressing the current pandemic. Congress recently gave state and local governments access to over $320
billion for pandemic response, expansions of Medicaid and SNAP, disaster aid, education expenses, community
development, transportation, and childcare. Increased Unemployment Insurance aid adds another $270 billion to
that sum. On May 4, 2020, the U.S. Department of the Treasury issued updated guidance to clarify that CARES
Act funding appropriated for the states may even be used to help cover qualified payroll costs for county and local
public health and public safety employees, among other uses. Additionally, state and local governments always
have the option to reduce excessive spending and borrow funds from global bond markets, and the Federal
Reserve System (FED) has pledged over $500 billion to buy bonds from state and local governments. This credit
from the FED alone is equal to roughly a full third of all annually collected state and local tax revenue. The federal
government cannot acquire these funds in a less harmful or less distortionary manner than the options already
available to state and local governments. It is not appropriate to bypass that process and offload that burden to
the federal government.
Further, many of the states and localities that are making these requests have historically demonstrated a lack
of respect for federal law and constitutional rights, and more recently a penchant for overly restrictive shutdown
orders. These actions have, rightfully so, received scrutiny from the U.S. Attorney General. A bailout of these
jurisdictions would only serve to condone these actions and encourage economically oppressive restrictions on
American people and businesses. Beyond these egregious concerns, many state and local governments have track
records of using public funds to push union and Green New Deal agendas, implementing restrictions that stunt
growth and increase poverty like occupational licensing and land use restrictions, as well as providing indirect aid
to abortion providers. Given the track record of these governments, it is vitally important that any further federal aid
be restricted to those efforts that directly combat the pandemic. Additionally, any further aid should be dispensed
through state governments so that we can place strict requirements on those funds to ensure they are used in an
appropriate and intended manner.
As such, it is our resolute position that direct federal funding to state and local governments not related to the
pandemic is inappropriate, particularly when it merely facilitates long-time fiscal mismanagement.