State Debt and Federalism - The American Spectator | USA News and Politics
State Debt and Federalism

The NY Times has a front page story on how state budgets are being crushed under the weight of a tremendous debt load that threatens to turn them into Greece, with accounting gimmicks understating the true cost of their fiscal situation, and a looming credit crunch as bond markets become more skittish about lending them money.

There are a lot of important issues here, not the least of which is the fact that it’s only a harbinger of things to come for the federal government as we enter the entitlement crisis. 

But there’s another consequence of the state budget woes that is worth drawing attention to, from the article:

The states can also take refuge in America’s federalist system. Thus, if California were to get into hot water, it could seek assistance in Washington, and probably come away with some funds. Already, the federal government is spending hundreds of millions helping the states issue their bonds.

There’s no doubt in my mind that if states were literally ready to collapse, the federal government would step in and orchestrate some kind of bailout. But any massive bailout would inevitably come with strings attached and translate into a further erosion of state sovereignty. The bigger the crisis and the more states that are involved, the more significant that erosion may be — potentially erasing whatever remaining distinctions there are between state and federal government. 

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