N.Y., N.J. Governors Plead for State Bailout; S.C. Gov. Urges Restraint

By Matt Cover | October 31, 2008 | 12:35 PM EDT

New York Gov. David Paterson

(CNSNews.com) – New York Gov. David Paterson and New Jersey Gov. John Corzine told Congress Wednesday that their states, and others, will need a multi-billion dollar bailout if they are going to be able to provide basic state functions, such as Medicaid payments and infrastructure investment.
Paterson, appearing before the House Ways and Means Committee as part of a panel of governors and public officials invited to testify on the bailout from the perspective of “Main Street,” said that New York and other states facing massive budget deficits should be given a bailout just like the financial industry.
Those states, he said, have already slashed their budgets and need a federal lifeline in order to keep operating.
“States need direct and immediate fiscal relief,” Paterson said. “Washington needs to step up and help states address a problem that was not of their own making. Just like the financial services industry, we (states) need a partner in the federal government in order to help stave off an impending calamity and stabilize our fiscal condition.”
The call for a bailout was not unanimous, however. South Carolina Republican Gov. Mark Sanford urged the committee and Congress to avoid placing further burden on an already struggling economy by adding billions more in debt.
“Simply throwing money into the marketplace in the hope that something positive will happen ignores the fact that the government has already put over $2 trillion into the system this year,” Sanford lamented.
Paterson, meanwhile, did not ask Congress for a specific amount of money, although he suggested it would be less than the $700 billion already approved to bail out the nation’s struggling financial sector.
“If it took only two weeks for the federal government to find $700 billion to bail out Wall Street,” he told Congress, “then we ought to be able to find a fraction of that amount to help preserve essential services at the state level.”
Corzine, testifying before the House Transportation and Infrastructure Committee, said that he would like to see the government dole out approximately $300 billion to help states meet their obligations.
“We need a substantial and timely – post election not post inauguration – stimulus package,” Corzine told lawmakers. “My hope is that its total size will be in the $250-300 billion range.”
New York and New Jersey are the second and third states, respectively, to beg the government for help. California Gov. Arnold Schwarzenegger wrote a letter to Treasury Secretary Henry Paulson on Oct. 2, raising the possibility that his state would need $7 billion in order to pay its bills.
Rep. Charles B. Rangel (D-N.Y.), chairman of the Ways and Means Committee, expressed support for state bailouts at the start of the hearing. Rangel said that Congress should come back after the presidential election to pass what he called “critical” legislation to bail out local and state governments.
“It is my hope that this committee would better realize how critical a new recovery effort is,” Rangel said, “and that they would encourage the leadership of both parties to come back after the election and see what we can do to provide assistance to working families as well as local and state governments.”
The nation’s mayors also pleaded with Congress for an infusion of taxpayers’ dollars. Douglas H. Palmer, mayor of Trenton, N.J., and former president of the U.S. Conference of Mayors, called for a “main street stimulus package” that would pay for basic local functions such as public safety, water and sewer treatment, and highway infrastructure.
“Now that Congress has enacted a $700 billion package to bail out Wall Street,” Palmer said, “we strongly recommend the enactment of a main street stimulus package.”
The plan proposed by Palmer, portions of which were supported by both Paterson and Corzine, would cost approximately $90 billion.
Sanford, meanwhile, questioned whether another bailout would do any good, citing the erratic stock markets that followed the original bailout bill.
“If $2 trillion did not ward off the crisis in confidence,” Sanford asked, “then how much can $150 billion more help?” 
The $150 billion Sanford referred to is a proposed second stimulus package favored by Congressional Democrats and endorsed by Federal Reserve Chairman Ben Bernanke.
Sanford said a state bailout would only encourage the type of behavior that had gotten states into their current predicament.
“Essentially, you would be transferring taxpayer dollars out of the frying pan – the federal government – and into the fire – the states themselves,” Sanfrod said. “I think this stimulus would exacerbate the clearly unsustainable spending trends of states, which has gone up 124 percent over the past 10 years.”