Heritage: Don’t bail out struggling states, clear way for bankruptcies

“At a bare minimum the 112th Congress should hold the line and refuse to bailout any state government. Instead, Congress should consider a way for states to file for bankruptcy or its fiscal equivalent,” the foundation wrote. “While such a law would raise some serious federalism issues, as long as states are allowed to enter into bankruptcy voluntary, it could be constitutionally acceptable.”

However, David John, a senior research fellow at Heritage, warned that any bankruptcy process should stand alone, and not be part of additional federal assistance.

“Such a process should not be part of a deal under which states can also receive a federal bailout. State and local governments made the mess of their finances, and they should have to clean them up,” he said. “Congress should provide a mechanism to make the process more direct, giving the states the flexibility to address their fiscal problems consistent with federalism and the principles of limited constitutional government.”

The conservative group’s preemptive strike on state bailouts is the latest such volley from the right. The campaign theme of federal budgetary belt-tightening that helped Republicans take over the House in this fall’s elections is being echoed by lawmakers saying states should follow suit. Rep. Paul Ryan (R-Wis.), the next chairman of the House Budget Committee, criticized in August further federal relief for state and local governments.

“States and localities need to take this moment to get their fiscal houses in order,” he said at the time. “Just as the federal government must make the difficult decision on how to live within its means, states and localities must do the same.”

And former Alaska Gov. Sarah Palin has also warned Congress to not rescue states that cannot meet budgetary obligations.

Budget-strapped states “should follow the example of their more prudent sister states and take the necessary steps to sort out their own finances,” she wrote in a Dec. 6 post from her Facebook account.