GOP Warns States: Get Fiscal Houses in Order

If states thought the renewed economic turmoil in Greece and Spain might make Republicans in Congress more sympathetic to their own tight budgets, think again. 

Key Republican U.S. senators put California, Illinois and other financially-strapped states on notice Tuesday (May 15) to not expect Washington’s help and instead called on these states to make dramatic fiscal changes on their own.

“Recent experience on Wall Street and in Athens suggests that if decision makers in Illinois, New York, California or anywhere else believe Washington will bail them out of their fiscal mismanagement, we cannot expect any self-directed reform from them,” U.S. Representative Kevin Brady of Texas and U.S. Senator Jim DeMint of South Carolina wrote in an op-ed in yesterday’s Wall Street Journal.

Both are members of the Joint Economic Committee and pointed to a new report from the Republicans on that panel that concludes that California, Illinois and Michigan are states that are most like Greece because of their economic policies.

“States that have followed Europe’s economic policy model of unbridled spending are getting Europe’s economic results: low growth and looming fiscal catastrophe,” Brady and DeMint wrote.

The report points to Utah, New Jersey, Rhode Island and Wisconsin as states that are most like Germany, which is described as Europe’s “model of fiscal prudence.” These states were lauded for increasing the amount certain public workers must pay toward their pensions.

“Congress must—in word and if necessary in law—make plain that the taxpayers will not protect these states from the consequences of their policies,” the Republicans wrote.

The report comes just as California discovered that its budget deficit has swelled to nearly $16 billion, from the $9.5 billion projected earlier this year. But the state could get some help from another quarter other than Congress. The initial public offering later this month of Facebook, headquartered in Menlo Park, Calif., could provide a windfall of billions of dollars in tax revenue.

The 2009 stimulus package that a Democratic-controlled Congress enacted and President Obama signed provided some billion to states and localities, but that money has run out.

Some economists counter that the layoffs that states and local governments have made to balance their budgets have actually hurt the national recovery and that further cutbacks could stall an economic rebound even further.