The main issue here is the unfunded liabilities of the state and local pension systems, particularly in Democrat-run jurisdictions such as the state of Illinois and the city of Dallas. What happens is this: Government employees are a powerful political constituency, and they want what all such powerful political constituencies want: more. But corporate executives are not alone in suffering from the agent-principal problem, and in the states and cities the leaders are for the most part political cowards who, unlike the bigs in Washington, cannot borrow money for ordinary operating expenses such as payroll; and so rather than satisfying their constituents’ demands with higher salaries, they offer them more generous pensions and benefits in retirement — and then, in 99 cases out of 100, decline to set aside the money necessary to pay for those promises. The difference between what a pension system has invested and what it needs to make good on its promises is its “unfunded liability,” and in states such as Illinois these liabilities can run into the hundreds of billions of dollars. For Illinois to make up the difference between what it has promised and what it has funded would require it to spend 100 percent of its tax revenues for about seven years on nothing else — and that was before revenues nosedived thanks to the lockdown.
There is a good case for providing some short-term aid to states and cities whose revenue streams are currently smoking ruins in the wake of a global crisis over which they had no control. But that is not the question. The question is whether Washington should bail them out of troubles that are only tangentially related to the epidemic. The answer to that is, No.