Federal Cash for State Budget Cuts?

MoneyIn an Investors Business Daily piece this summer, Nicole Gelinas puts forward an interesting idea about how to stimulate the economy, and at the same time cut back on future government growth. The idea is a reverse of President Obama’s $4 billion dollar “Race to the Top” program, and other federal subsidy programs, which offer federal tax dollars to states for “innovative” reforms—but which almost always require higher spending by state government after federal funding goes away (case in point: expanding unemployment compensation eligibility).

In Gelinas’ plan, federal money would be tied to reducing state and local government spending. For every two dollars states cut either now or in the future, states and cities would receive one dollar of stimulus money from the government. For example, if Harrisburg needs to make a debt payment now of $100 million, it could cut $200 million worth of future pension spending to receive $100 million in stimulus money.

Federal funding would be tied to things like moving to a 401(k) retirement plan for state workers, public employee wage freezes, or requiring government workers to contribute more for their health care.