Mitch McConnell is in Favor of Letting States Declare Bankruptcy
On April 22, 2020, Senate Majority Leader Mitt McConnell stated that he is in favor of letting states swamped with high public employee pension costs, who are now pushed to the limit because of the Wuhan virus pandemic, to declare bankruptcy instead of receiving a federal bailout.
“I would certainly be in favor of allowing states to use the bankruptcy route,” he declared on April 22 in response to a question that conservative radio host Hugh Hewitt asked him that day. “It’s saved some cities, and there’s no good reason for it not to be available.”
Hewitt alluded to California, Illinois and Connecticut as states that have bloated public sector union benefits. McConnell expressed his reluctance to pile up more debt through more bailouts.
“You raised yourself the important issue of what states have done, many of them have done to themselves with their pension programs,” he stated. “There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations.”
McConnell’s remarks provoked great criticism from state and local officials.
New Jersey Democrat Governor Phil Murphy, said he was shocked by McConnell’s remarks, which he called “completely and utterly irresponsible.”
“He’s dead wrong. You have my word we won’t go bankrupt,” he stated. Without cash to states, Murphy commented, governors will be compelled to “gut the living daylights out of every state of America,” cutting budgets and eliminating essential services.
New York Mayor Bill de Blasio went on Twitter and said that McConnell “wants police officers to lose their jobs. He wants firefighters to go broke. He wants hospitals to close and sick people thrown out on the street.”
McConnell’s statements were also countered by House Speaker Nancy Pelosi, who said on Bloomberg Television on April 21 that a “major package” of aid for state and local government will be tacked on to the next stimulus legislation that Congress is considering.
McConnell may also find himself in at odds with President Donald Trump. The president said April 21 after meeting with New York Governor Andrew Cuomo that states will need assistance. “And I think most Republicans agree too, and Democrats,” Trump said. “And that’s part of phase four.”
On Fox News, McConnell said that any state or local aid must be specifically connected to the pandemic and shouldn’t be used for the purpose of “revenue replacement.”
“We’re not interested in solving their pension problems for them,” McConnell stated. “We’re not interested in rescuing them from bad decisions they’ve made in the past. We’re not going to let them take advantage of this pandemic to solve a lot of problems that they created for themselves with bad decisions in the past.”
Other skeptics of a federal bailout of the states say it would be in violation the federalist system and the sovereignty of states as outlined in the Constitution. If states were allowed to seek bankruptcy protection in federal court, a judge and Congress could exercise influence over states’ fiscal policy.
The National Governors Association claims that states and municipalities will need at least $500 billion in aid to handle the crisis brought about by the Wuhan virus pandemic as tax revenue plummets and demand for services grows.
The last time states have defaulted on debts was the Great Depression.
With looming economic uncertainty, many high-spending states could be in for a wild economic ride.