State bailouts are the subject of much debate on Capitol Hill these days.
On Wednesday (February 9), a House committee held a hearing
on the possibility of allowing struggling states to declare bankruptcy, much like businesses or municipalities. The idea has been pushed by a small group of conservatives, including former House Speaker Newt Gingrich, but has come under withering criticism from many other elected officials, including the National Governors Association
, over fears that it would only worsen states' finances. Among other things, critics charge that bankruptcy would drive bondholders away and put tens of billions of investment dollars at risk.
Now, the Obama administration has added another wrinkle to the debate over state finances, announcing that it will be pushing a separate state bailout plan
in the budget it releases next week. Obama's proposal would help states shore up their woefully underfunded unemployment systems by deferring interest payments that are owed to the federal government and letting states collect more taxes from employers, beginning in two years. Obama administration officials see the plan as a way to provide short-term relief for the states without immediate tax increases on job providers, but congressional Republicans have expressed deep skepticism, with one influential lawmaker declaring that the plan " isn't going anywhere
With the battle lines in Washington already forming on the plan, the focus now will be on the nation's governors and state lawmakers, who stand to benefit from the federal aid package, which isn't as controversial as the Gingrich-backed bankruptcy idea. The question seems to be whether Republican governors, in particular — there are now 29 of them — see short-term relief for the states as more important than curbing federal spending.
At least one Republican governor, Florida's Rick Scott, has come out strongly against the plan. Scott rejected the federal assistance on Wednesday and suggested he would rather cut benefits for the unemployed than raise taxes on employers in order to pay for such benefits. A spokesman for Scott also made clear where the new governor, a tea party favorite, stands on the federal deficit. "Band-aids and quick fixes from a federal government that spends money faster than it is printed will not solve real problems," the spokesman, Brian Hughes, told The Miami Herald
Other GOP governors, however, kept an open mind. "We'd like to see the specific details, but would likely welcome the much-needed relief," a spokesman for Michigan Governor Rick Snyder said, according to The Herald