There are many good reasons to question continued federal bailouts of profligate state and local governments, and to be disappointed (though hardly surprised) that Congress is about to do it again to the tune of $26 billion. All state taxpayers are by definition federal taxpayers, so there’s no gift here, just shady accounting that gets state politicians off the hook for their past spending decisions and puts us all on the hook for billions of dollars of additional government debt we can’t afford.
A problem that doesn’t get the attention it deserves, however, is the constitutional one. Most American states (and their localities) are prohibited by their state constitutions from financing their operating costs with borrowed money. They must balance their operating budgets with current revenue, and many can’t take on general-obligation debt for capital needs without following a specific process, including public approval via referendum.
Regardless of whether you think these balanced-budget provisions are wise — I think they correctly apportion fiscal power, giving elected officials discretion over short-run obligations but requiring a broader public consensus for long-run obligations — they represent the constitutional law governing most of the United States. When Congress passes “stimulus” bills that use the federal credit card to cover state and local operating deficits, it colludes with state and local politicians to evade their constitutional responsibilities. It’s not just an unwise and reckless fiscal policy. It’s an act of contempt for constitutional government.