TJ, I agree with you there. If the state needs $$, and has the option to provide fish (i.e. sell) those fish at a profit, and can put needed $$ into it's coffers, why not? I don't see that as being any different than private businesses competing with one another. That is providing that the state complies with all the same rules, regulations and paperwork trail that applies to business owners.
Here, in Indiana, it seems that the regulations that apply to state hatcheries are much more lenient than they are for private businesses. i.e. they can import fish without having some or all of the required testing done, whereas we business people would get hung out to dry if we did that.
Scott, States routinely violate the federal Lacey act, and USF&W just looks the other way. If a state were to compete with a private hatchery, I wonder how fast the private competition would be regulated out of existence.....?