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Lawmakers Oppose Federal Bailout For States

WASHINGTON (AP) - The new Republican-led House is showing no appetite for making federal taxpayers help state and local governments cope with widespread budget problems. Even some Democrats are wary, underscoring the impact of Washington's crushing budget deficits.

"The era of the bailout is over," Rep. Patrick McHenry, R-N.C., told a House hearing on the debt problems facing scores of states and municipalities around the country.

At the same hearing, Rep. Mike Quigley, D-Ill., said states need to erase their deficits and face up to their long-term obligations such as pensions for government workers on their own. He also criticized a proposal from some conservatives that Congress pass a law allowing states to reorganize their debts by declaring bankruptcy, an idea that opponents say would send state borrowing costs soaring.

"I don't think either one of those options can work or are optimal," Quigley said.

McHenry, the chairman of a subcommittee of the House Oversight and Government Reform Committee, conducted a hearing on the bailout idea. Quigley is the top Democrat on the panel.

House Majority Leader Eric Cantor, R-Va., has also said there will be no federal bailout for fiscally ailing states.

Washington has pumped billions of dollars to state and local governments during the past two years from President Barack Obama's $814 billion economic stimulus program. But that aid is ending, and states and municipalities face huge projected deficits for this year and next.

For the coming fiscal year, the 50 states face combined expected deficits of $125 billion, according to the liberal Center on Budget and Policy Priorities. Unlike the federal government, nearly all states are required by their constitutions to balance their budgets.

Despite bipartisan agreement that Washington's budget problems mean that governors can't expect help from federal taxpayers, the two parties used the hearing to cite different culprits for the states' problems.

Republicans said the stimulus program let states postpone making their budgets healthier and pointed a finger at state workers' pensions and health benefits. Democrats, arguing that the stimulus let states preserve valuable services, defended public employees and said that most states' budget imbalances are largely due to the huge bite that the weak economy took out of tax collections.

Citing worries that state workers could see their pensions cut, Rep. Elijah Cummings, D-Md., said, "One of my concerns is when the storm is over, then these folks have been locked out of a lot of money they were due."

McHenry blamed the wide-ranging budget problems chiefly on states' huge pension obligations, citing "the looming burden of paying out trillions of dollars in lucrative public sector union pension and health care benefits that come at the expense of taxpayers."

He said public employees on average have better salaries and benefits than private workers. "Public sector employees and private sector employees are living in two different economies," he said.

McHenry also blamed excessive spending and falling tax revenues caused by the economic downturn. "Reckless spending fueled by bottomless borrowing and guaranteed by endless bailouts is an unsustainable course," he said.

Quigley, the Democrat, said long-term budget imbalances are faced by only six to eight states, including his own state of Illinois. He said those states face major problems caused by rising health care costs and underfinanced pension plans.

"This is why a one-size-fits-all approach, like bankruptcy for states, could do more harm than good," Quigley said.

Other states facing especially tough budget problems include New York, New Jersey, California and Texas.

In another pension-related event Wednesday, a group of Republican lawmakers called for legislation that would increase the reporting requirements for state and local pension plans.

The lawmakers said that the lack of clear reporting standards is contributing to a lack of awareness about the precarious state of some pension plans.

A bill introduced in the House would require the pension plans to report two sets of numbers. The first set would detail liabilities based on the plan's own accounting methods. The second set would report the numbers based on a uniform standard that all plans would have to follow. Sponsors that did not publicly disclose their plan's liabilities would lose the authority to issue federal tax-exempt bonds.

The bill also would prevent the federal government from bailing out insolvent pension plans.

Some analysts say the plight of state and local pension plans is being exaggerated and that they actually have many years to remedy shortfalls, but lawmakers calling for the new reporting requirements aren't buying it. Rep. Devin Nunes, R-Calif., said a crisis is approaching in a few short years, not in the distant future.

Business groups such as the U.S. Chamber of Commerce and advocacy groups such as the National Taxpayers Union threw their support behind the bill. They said the legislation would not impose an undue burden on state and local governments.

"That's hardly an imposition. It pales in comparison to the kinds of burdens that have been imposed upon our private sector," said Pete Sepp, executive vice president of the National Taxpayers Union.

Several state and local government associations are opposing the legislation, saying it's unwarranted and that the pension plans overall are in good shape, having collectively funded four-fifths of their future pension liabilities.


Associated Press writer Kevin Freking contributed to this report.