A Last Resort The Feds Will Be Checking Into

Joe Mathews
Connecting California Columnist and Editor, Zócalo Public Square, Fellow at the Center for Social Cohesion at Arizona State University and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (UC Press, 2010)

This Washington Post story, headlined “California Aid Request Spurned by U.S.,” is one of those stories that means exactly the opposite of what it’s first paragraph says.

After reporting that California’s pleas for federal assitance have been turned down, the story reports the following.

“After a series of meetings, Treasury Secretary Timothy F. Geithner, top White House economists Lawrence Summers and Christina Romer, and other senior officials have decided that California could hold on a little longer and should get its budget in order rather than rely on a federal bailout.

These policymakers continue to watch the situation closely and do not rule out helping the state if its condition significantly deteriorates, a senior administration official said. But in that case, federal help would carry conditions to protect taxpayers and make similar requests for aid unattractive to other states, the official said. The official did not detail those conditions.” (Italics are mine)

First, because I can’t resist tooting my own horn, this is precisely what I urged – federal assistance with serious strings attached – last month in the New York Times.

Second, let me explain what the feds are saying. They’re not saying, We’re not going to help you. They’re saying, “We’re not going to help you right now.”

Which is precisely what the feds should say right now. The state doesn’t run out of cash until July 28, by current estimates. So the feds, by saying no for now, keep pressure on the state to do as much as possible to resolve its own budget problems.

But this story shows that the feds are keeping the door open. And that’s correct too. State legislative leaders and the governor are not going to be able to cut enough to resolve the state’s budget problems. And as the Post story says, big cuts could hurt the economy. The Post says: “The administration is worried that California will enact massive cuts to close its deficit, estimated at $24 billion for the fiscal year that begins July 1, aggravating the state’s recession and further dragging down the national economy.”

One could even read that as a belief that leading Obama administration economists think tax increases are better for the economy than cuts as a way of closing the state’s deficit.

Just wait until late July. You’ll be reading stories with headlines that are just the opposite of this one.

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