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“Senate Majority Leader Mitch McConnell said Wednesday he favors allowing states struggling with high public employee pension costs amid the burdens of the pandemic response to declare bankruptcy rather than giving them a federal bailout.” Bloomberg
You can read the entire radio interview with Hugh Hewitt here. Hugh Hewitt
The left is critical of McConnell’s comments, arguing that the federal government should assist state and local governments.
“[The federal government] can borrow vast sums very cheaply. In fact, the [yield] on inflation-protected bonds, which measure real borrowing costs, is minus 0.43 percent: Investors are basically paying the feds to hold their money. So Washington can and should run big budget deficits in this time of need. State and local governments, however, can’t, because almost all of them are required by law to run balanced budgets. Yet these governments, which are on the front line of dealing with the pandemic, are facing a combination of collapsing revenue and soaring expenses. The obvious answer is federal aid. But McConnell wants states and cities to declare bankruptcy instead…
“For one thing, states don’t even have the legal right to declare bankruptcy; even if they somehow managed all the same to default on their relatively small debts, it would do little to alleviate their financial distress — although it could cause a national financial crisis. Oh, and the idea that this is specifically a blue state problem is ludicrous. Fiscal crises are looming all across America, from Florida to Kansas to Texas — hit especially hard by crashing oil prices — to, yes, McConnell’s home state, Kentucky. And if states and local governments are forced into sharp budget cuts, the effect will be to deepen the economic slump — which would be bad for Donald Trump and could cost Republicans the Senate.”
Paul Krugman, New York Times
“States have in fact spent the last few years building up their rainy day funds to an all-time total high. But the revenue shortfalls now, amid unprecedented closures, are expected to far exceed those savings… All major forms of state and municipal revenue are cratering as people lose their jobs or incomes and stop shopping because they are staying home. Personal income taxes, capital gains, corporate profits, sales taxes and gas taxes, as well as gaming, tourism and oil revenue, are all expected to decline… A recent Moody's Analytics report found that state fiscal shock could total $203 billion through the end of fiscal 2021, roughly 18% to 23% of last year's general fund revenue.”
Tami Luhby, CNN
“All 50 states have set aside money in at least one rainy-day fund, with a combined balance of roughly $62 billion as of the end of 2019, according to the Congressional Research Service. The median balance in these funds was 7.3 percent of general fund spending, according to the National Association of State Budget Officers. States can and should draw on these dollars, but even if they tapped them all, there would still be a huge budget hole to fill…
“Illinois’s worst-in-the-nation pension shortfall is indeed a self-inflicted structural failing (and Kentucky’s is almost as bad) that federal taxpayers cannot be expected to remedy. It is also not representative of the broader predicament of the states… There is no issue of ‘moral hazard’ — rewarding bad behavior — when it comes to providing federal aid to state and local governments, just as there was no such issue in coming up with aid to the private sector.”
Editorial Board, Washington Post
“[McConnell] is kindly suggesting New York and other places throttled by the coronavirus and associated economic shutdowns swallow the fiscal cyanide of bankruptcy rather than get federal aid, what his staff calls a ‘Blue State Bailout.’ No, the feds shouldn’t prop up rickety pension systems and otherwise unsustainable state spending habits. But… New York’s nightmare — which, ahem, annually sends $30 billion-plus more to Washington than it gets back — has almost nothing to do with that, almost everything to do with the spread of COVID-19…
“McConnell wants blue states to go bankrupt while Kentucky relies on massive federal largesse… In a recent fiscal year, 39.5% of the state’s overall budget came from Washington, making it the fourth most DC-dependent state in the nation. By another measure, Kentucky is the nation’s second most federally dependent state… ‘All 100 senators may have one vote,’ McConnell proudly proclaimed last year, ‘but they’re not all equal. Kentucky benefits from having one of its own setting the agenda for the country.’ He may want states to restructure their finances rather than take any more federal cash, but he’s the one who’s morally bankrupt.”
Editorial Board, NY Daily News
“Even if it were just blue states that needed help, McConnell's attitude would be catastrophic for everyone. The United States isn't going to prosper if the economies of states like California, New York, and New Jersey are in free fall. The nation's economy is deeply interconnected, and many Democratic-run regions contribute an outsized portion of economic growth. Leaving major states to scramble for themselves and fail to fulfill their financial obligations could tumble us into a depression.”
Cody Fenwick, Salon
The right is skeptical of bailing out states, arguing that their budget problems are largely the result of long-term failures to control spending.
The right is skeptical of bailing out states, arguing that their budget problems are largely the result of long-term failures to control spending.
“Over the past 40 years, after fully accounting for increases in population and inflation, state and local direct general spending has grown by 88 percent. Despite one of the longest economic booms in American history, states have also continued accumulating debt and unfunded public pension obligations…
“Rather than request a $500 billion bailout from Congress, adopting spending reforms like priority-based budgeting – which eliminates redundancy and increases accountability to taxpayers – is key… This level of fiscal discipline is not easy to achieve, but it is exactly what taxpayers deserve. As American families and businesses make their own financial sacrifices to survive the COVID-19 economy, state policymakers must reprioritize spending and avoid the temptation of falling into a cycle of federal dependency.”
Jonathan Williams and Lee Schalk, The Hill
“Illinois’s unfunded pension liability increased 60% between 2010 and last year to $137 billion even as the stock market more than doubled… Keep in mind that Congress’s $2.2 trillion Cares Act last month included a $150 billion blank check to states plus $90 billion for schools, public transit and Medicaid. To put these numbers in perspective: All state tax revenues during the last three months of 2019 totalled $254 billion. So Washington’s last state infusion is roughly equal to three months of tax collections…
“Bailout conditions should include cuts in nonessential spending, immediate and permanent reductions in public pension benefits, and other reforms to put states on a path to fiscal recovery. Lawmakers will protest, but they are the ones asking Americans for help. If states want more money, they need to show it won’t merely go to sustain unaccountable, one-party political machines.”
Editorial Board, Wall Street Journal
“It’s reasonable to ask for federal help right now. But Congress shouldn’t feel compelled to subsidize what any state or local government ‘normally’ does…
“In any coming aid package, Congress should shape its own version of a new normal — by attaching at least two conditions designed to foster prudent choices and accountability to taxpayers: First, stipulate that federal aid otherwise due to any state will be reduced by an amount equal to money spent on higher wages or benefits for current government employees. Second, require states and large cities to produce budgets that are balanced on the basis of Generally Accepted Accounting Principles, the same condition New York state imposed on Gotham after the fiscal crisis of the 1970s.”
E. J. McMahon, New York Post
“If Pelosi insists on the bloc-grant approach that would allow states to use money to paper over their normal budget holes, as the 2009 stimulus bill did, McConnell can simply refuse to let it proceed. Unless the PPP runs out of cash again and McConnell needs to fund it, he can wait out Pelosi and Schumer until they agree to restrict the funds specifically to COVID-19-related activities…
“This massive amount of borrowing has to get targeted as closely as possible to the actual economic damage of the pandemic, not the damage done by bad policies over several decades in the states. Taxpayers in Minnesota and Texas shouldn’t be bailing out Massachusetts and Oregon, or the other way around for that matter. If states are in trouble in other ways than the pandemic, they can start making the necessary changes to address them rather than have bad policies subsidized by Congress.”
Ed Morrissey, Hot Air
Some point out that “states are not administrative subdivisions of the federal government. They are powers in their own right, superseded by the U.S. government only in certain matters that involve more than one state: Washington can declare war or write immigration law, but it cannot tell Austin how to run the Texas Rangers or Sacramento how to prioritize its finances. Because bankruptcy law is federal law, putting states into bankruptcy reorganization would upend our basic constitutional arrangement, making state governments answerable to federal bankruptcy judges and, behind them, to Congress…
“The most likely way forward — the only plausible way forward short of gutting the Constitution — is for states to engage in a long, painful, disruptive negotiation with their creditors, their pensioners, and other interested parties. There will be endless lawsuits, unpopular budget cuts, unpopular tax hikes, and much else that is designed to make no one happy except for the lawyers. (The lawyers always get paid.) But these are the decisions the democratically elected representatives of the people of the several states have made, and they will have to live with them.”
Kevin D. Williamson, National Review
