Use relief funds for recovery alone
As the federal government spends astronomical sums to combat the effect of economic slowdowns due to the pandemic, Congress needs to make sure that these funds are targeted as narrowly as possible.
House Democrats have presented their latest stimulus package, which has a jaw-dropping $3 trillion price tag. It seems to be a Democratic wish list, and Senate Majority Leader Mitch McConnell, R-Kentucky, has said he’s not planning to take up the measure, given the burden it would add to an already massive deficit.
Among the provisions in the 1,815-page bill is a $1 trillion bailout for states and localities. Those funds are largely unrestricted, meaning they are untied to COVID-19 efforts.
That could be a problem.
One fear is that states and local governments will use the money to bail out struggling pension funds — a preexisting condition that has plagued many Michigan municipalities. That shouldn’t be allowed to happen. So says a May 8 letter to Congress signed by 24 think tanks, including the Mackinac Center, urging lawmakers to strip funds unrelated to COVID-19 relief.
“Relief efforts should primarily be about providing relief, not covering over profligate states’ self-inflicted fiscal harms,” the letter reads.
As an example, the letter points to state senators from Illinois who have asked Congress for $10 billion to address their state employee pension systems — which is $100 billion in the hole.
Michigan localities are no stranger to pension debt. In 2019, Michigan’s 100 largest municipalities had racked up more than $5.5 billion combined in unfunded pension liabilities, according to a study from the Mackinac Center.
James Hohman, director of fiscal policy at the Mackinac Center, said in an email that while most of our local governments’ costs are wrapped up in personnel, meaning federal relief funds would naturally go toward promised pension benefits, it’s possible city managers would try to unload some of their debt.
“Some managers may make extra payments to pay down existing pension debts with extra money from the federal government, but likely only if the federal government provides relief funds worth more than their revenue losses,” Hohman wrote.
He also noted that local governments will be less affected by COVID-19, since their revenue is based largely on property taxes, which are more stable than income or sales taxes.
States and local governments should certainly get a handle on their pensions, but giving them federal tax dollars from other states — all while adding to the federal debt — is the same stripe of bad thinking that got them into their current fix in the first place.
As noted by the Heritage Foundation, other problematic spending measures included in the stimulus package are: the blanket $10,000 forgiveness to student loans; the extension of unemployment bonuses through January 2021, a misguided measure that could actually incentivize joblessness; and an unnecessary $25 billion bailout of the United States Postal Service.
Economic stimulus is needed while we get businesses back online, but COVID-19 relief funds must be focused entirely on recovery efforts.
— The Detroit News