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Letter of Support for Sen. Kirk's "No State Bailouts" Resolution

March 18, 2013 J

Dear Senator Kirk:

On behalf of more than two million Americans for Prosperity activists in all 50 states, I write in strong support of your resolution opposing state bailouts. The federal government has too many fiscal problems of its own to be able to take on states’ problems, too. State bailouts are bad principle, and they’re bad economics.

State governments are currently facing myriad budgetary problems—declining revenues, runaway spending, large unfunded pension liabilities, etc—and some seem to be on the brink of bankruptcy. Your resolution affirms that states are responsible for their own debts, prohibiting the federal government from bailing out states that get themselves into budgetary trouble.

If the federal government bails out state governments, then moral hazards would arise. If a state government knew that the federal government would cover its debts, then it would have a strong incentive to take on more risk than it would otherwise. State bailouts would reward states that engage in reckless budgetary behavior, while penalizing those that live within their means.

State governments should address their budget problems through fiscal reform, not by looking to the federal government for a helping hand. Punting budget problems to the federal government doesn’t solve the root cause of these broken budgets; it just pushes the problem into the future and onto federal taxpayers.

Federal taxpayers shouldn’t be forced to pay for the bad budgetary behavior of state governments. Americans for Prosperity is proud to support your resolution opposing state bailouts. I urge your colleagues to support this legislation, and I look forward to working with you in the future.

Sincerely,

James Valvo
Director of Policy
Americans for Prosperity

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