States of course argue today, as they have countless times in the past, that they need federal aid to avoid cutting essential programs that hurt their most vulnerable citizens. But the blunt fact is that the money will only encourage them to keep doing business the same old way rather than seek innovative solutions.
For instance, many state officials want the federal government to boost infrastructure aid as part of a federal spending package, so that states can build more roads, bridges and mass transit. This is typically unimaginative: Around the world sits hundreds of billions of dollars of private capital looking to go to work financing infrastructure, which our states are largely ignoring.
Countries as different as France, Spain, China and Russia have tapped this money. In the U.S., only a few governments have even tried. Indiana Gov. Mitch Daniels privatized the state’s major toll road for an upfront payment of $3.8 billion in 2006. He put the money in the state’s transportation trust fund and increased investments in infrastructure. Other governors, like Mr. Rendell in Pennsylvania, have tried similar maneuvers. But they’ve been blocked by state legislators who want to keep these assets — and the public-sector jobs that usually are dedicated to running them — in government hands.
Steven Malanga of the Manhattan Institute has an excellent editorial in the Wall Street Journal covering all the major topics of why states overspend – creating or expanding costly programs in good times, failing to deal with state pension and benefit liabilities, failing to seek innovative solutions to problems, and the like.