Give States More Flexibility, Not a Bailout

Faced with ballooning state budget deficits, many of the nation’s governors and mayors are lining up behind leaders from Wall Street and Detroit in hopes of receiving a federal bailout.

In October, the National Governors Association sent a letter to congressional leaders requesting federal funding to offset state revenue shortfalls. New York Gov. David Patterson made the plea in person, testifying before the House Ways and Means Committee: “As part of a comprehensive second economic stimulus package, states need direct and immediate fiscal relief.”

The U.S. Conference of Mayors is also pushing Congress to pass a stimulus bill that benefits states and localities. Mayors from large cities including Atlanta, Philadelphia and Phoenix have appealed to Washington for help.

But not all state and local leaders are looking for a handout. South Carolina Gov. Mark Sanford, testifying before the House Ways and Means committee, urged Congress not to bail out the states. He pointed out that states have plenty of ways to reduce expenses, considering that overall state government spending has grown by 124 percent over the past decade. That’s an even faster growth rate than federal spending, which has increased by 83 percent. Sanford warned that a bailout would just enable more unsustainable state spending.

Instead of a bailout, Sanford offered Congress another way to help alleviate states’ budget crunches: “Give us more flexibility. Give us more in the way of control over the dollars we already have and less in the way of costs. Give us more options, not more money with federal strings attached.”

Among the programs that Sanford referenced was No Child Left Behind. NCLB distributes funding for education ($24.4 billion in 2008) to states through a series of formulas and competitive grants. Each program has its own purpose, bureaucracy and regulations.

This process creates a significant compliance burden for states and localities. Much of the funding supposedly targeted for improving education ends up being spent on navigating red tape. For instance, the Office of Management and Budget reported that NCLB increased the mountain of paperwork required of state and local education officials by nearly 7 million hours annually at a cost of $140 million.

With states now facing the prospect of cutting education spending, state leaders should take a close look at the current system of federal education funding and consider whether federal dollars could be put to better use.

Last year, conservatives in the Senate and House of Representatives offered plans to give states greater freedom in how federal funds for education could be used. Under those plans, states could choose to opt out of NCLB and receive federal education funding as a block grant. To get this freedom, states would be required to meet basic federal requirements — including using federal dollars to assist disadvantaged students and maintaining academic transparency through state-directed testing in core subjects and public reporting.

For states, the real benefit of this system would be to allow governors and state legislators to craft education policies that best meet the current needs of students in the state. For example, some states might choose to redirect their share of the $1 billion allocated for after-school programs on classroom expenditures. Others might find new ways to put to use their share of the $2.8 billion targeted for improving teaching.

While reform strategies will differ, participating states will have one thing in common — more decisions will be made in state capitals instead of Washington.

Participating states also would have more funding available to use on education, since less dollars will be needed to manage federal regulatory compliance. Steering these extra dollars toward more effective uses could provide welcome relief as state and local education budgets face cuts.

Before Congress puts taxpayers on the hook for another expensive bailout package, members should examine ways to help states weather the current fiscal crisis that don’t involve the U.S. Treasury. Giving states greater autonomy over federal education funds is a good place to start. Dan Lips is a Senior Policy Analyst at The Heritage Foundation (