Pleas for help have gone largely unanswered thus far, even though a lack of action could lead to steep cuts in state and local services such as education, housing, and health programs
Kentucky is one of the most financially insolvent states in the nation, with less than a week’s worth of operating costs in reserve, according to the Pew Charitable Trusts. That harsh truth didn’t stop Kentucky’s own Sen. Mitch McConnell last week from saying he would prefer to see states declare bankruptcy rather than have the federal government provide aid during the coronavirus pandemic.
McConnell, who serves as Senate Majority Leader, joined President Trump in refusing to provide federal relief funding for state and local governments in the $484 billion coronavirus relief bill signed into law last week.
In a Wednesday interview with conservative talk radio host Hugh Hewitt, McConnell said he was against federal aid because it would bail out states that he believes have mismanaged finances in the past, for instance, by incurring significant pension obligations for public employees. Instead, he said Congress should pass legislation allowing states to file for bankruptcy. Currently, cities can file for bankruptcy while states cannot.
“I would certainly be in favor of allowing states to use the bankruptcy route,” McConnell said. “My guess is their first choice would be for the federal government to borrow money from future generations to send it down to them now so they don’t have to do that. That’s not something I’m going to be in favor of.”
On Monday, McConnell backtracked on his comments and said he wasn’t endorsing the idea, but rather suggesting it as a possibility.
“I wasn’t saying they had to take bankruptcy. I think it’s just an option to be looked at that unfortunately states don’t have that option now, cities do. I wasn’t necessarily recommending it,” McConnell said. “But I was pointing out they have their own fiscal problems that predate the coronavirus and I was not interested in borrowing money from future generations to fix age old problems that states have that they created themselves wholly unrelated to this.”
He also expressed an openness to include aid for state and local governments in the next coronavirus relief bill, but said any such funds would come with a catch: He plans to “insist” that Congress limits the liabilities of healthcare workers, business owners, and employees from lawsuits as they reopen in the coming weeks and months.
“We probably will do another bill. What I’m saying is it won’t just be about money,” McConnell said. “The next pandemic coming will be the lawsuit pandemic in the wake of this one. So we need to prevent that now when we have the opportunity to do it.”
While McConnell’s focus is on protecting business owners who reopen too quickly or in an irresponsible fashion from lawsuits, House and Senate Democrats have for weeks fought for relief funding for state and local governments. Bipartisan leaders of the National Governors Association have also asked for $500 billion in aid to state governments, while mayors and counties have called for another $250 billion in emergency assistance.
Those pleas for help have gone largely unanswered thus far, even though a lack of action could lead to steep cuts in state and local services such as education, housing, and health programs. The Washington Post reported that Republicans’ opposition is driven by a fear that states and localities will move more slowly to reopen their economies if they receive federal aid, but state and local authorities countered that they would open their economies as soon as public health officials gave the go ahead to do so.
While the short-term economic damage being suffered now is immense, experts say the long-term consequences of the federal government’s refusal to provide assistance to state and local governments could turn a potentially short recession into a full-fledged, long-lasting depression.
“If you want to send the country into an extended depression, sending state and local governments into bankruptcy is a great way to do it,” a local government budget expert told the Post anonymously.
“This is grossly irresponsible with a naive sense of what state and local governments do,” Amy Liu, director of the Brookings Metropolitan Policy Program, told the Washington Post. “Without emergency relief as their revenues crater, state and local governments will not be able to run key programs like unemployment insurance, social services, housing assistance and small business outreach needed to protect people and businesses in this crisis.”
States and cities across the country are already enacting budget freezes and cuts as the coronavirus ravages their tax revenues and strains their financial reserves. In Kentucky, state lawmakers were forced to pass a one-year budget that maintains spending at existing levels and allows for future cuts as needed.
Kentucky Gov. Andy Beshear, a Democrat, said Saturday that he “strongly disagrees” with McConnell that bankruptcy was the best route for state and local governments.
“I very strongly disagree with him here as does every other governor in the country regardless of party. I hope those comments were off the cuff. I hope they were in reference to something else because bankruptcy for a state would be disastrous,” Beshear said during an interview with CNN’s Ana Cabrera. “That puts you in the hands of a federal judge and that judge could do anything from raise taxes on your people, which we can’t handle right now, to making disastrous cuts to law enforcement and education and healthcare. So we must, must have federal support for state and local budgets.”
Beshear wasn’t the only governor to criticize McConnell. On Sunday, Michigan Gov. Gretchen Whitmer, a Democrat whose state stands to suffer a $3 billion hole in its budget as a result of the coronavirus, called McConnell’s suggestion “outrageous” and “incredibly dangerous.”
“He’s wrong, and we need Congress to step up and help states,” Whitmer said on ABC News’ “This Week.” “It’s because of this global pandemic that we are all having to make tough decisions. We need the federal government to have our backs.”
The criticism wasn’t limited to Democrats. Maryland Gov. Larry Hogan, a Republican who serves as chairman of the National Governors Association, also appeared on “This Week,” where he said he thought McConnell “probably would regret making that comment the other day” and that he thought “it just slipped out” of the senator’s mouth.
“We have a commitment from the president and the vice president, and there’s bipartisan legislation in the Senate to do something to help support the states,” Hogan said.
The legislation Hogan was referring to is a bill introduced last week by Sens. Bill Cassidy (R-LA) and Bob Menendez (D-NJ) that would provide $500 billion in aid to states and localities. Trump has previously indicated he was receptive to the idea of helping state and local governments, but reversed course on Monday, the same day McConnell backtracked on his opposition.
“Why should the people and taxpayers of America be bailing out poorly run states (like Illinois, as example) and cities, in all cases Democrat run and managed, when most of the other states are not looking for bailout help?” Trump tweeted.
Trump tried painting the issue as one being suffered only by Democrat-led cities and states, but the issue is affecting states and cities regardless of political ideology. Maryland stands to lose as much as $2.8 billion in lost tax revenue between March and June, the Post reported, and Florida, which is led by Trump ally Gov. Ron DeSantis, could be one of the hardest hit states in the nation, due to its reliance on retail sales and tourism.
Congress did approve $150 billion for state and local governments in March, but the funds came with strings attached: The money could only be used to cover costs of fighting the coronavirus and couldn’t go toward lost revenue driven by the economic collapse. State and local authorities not only want more funding, but want those sorts of restrictions eliminated as well.
House Majority Leader Nancy Pelosi, Democrat of California, has insisted the next coronavirus relief bill include state and local funding, setting up a possible trade for McConnell’s business and employee liability protections.