McConnell says he supports letting states declare bankruptcy amid coronavirus

Senate Majority Leader Mitch McConnell (R-Ky.) on Tuesday said that he supports letting states declare bankruptcy as they face mounting budget constraints sparked by the coronavirus and as Democrats pledge to seek more federal funding.

McConnell, during an interview with radio host Hugh Hewitt, said any additional federal assistance to state and local governments needed to be “thoroughly evaluated.”

“I would certainly be in favor of allowing states to use the bankruptcy route. It saves some cities. And there’s no good reason for it not to be available. 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,” McConnell said.

Congress provided $150 billion as a part of last month’s $2.2 trillion coronavirus bill for state and local governments, who are forecasting massive holes in their budgets due to the economic impact of the coronavirus. 

But a $484 billion bill passed by the Senate on Tuesday, and expected to clear the House on Thursday, did not include any new funding for state and local governments. Democrats have said it is a top priority for the next coronavirus bill and both Treasury Secretary Steven Mnuchin and President Trump have appeared open to including new funding in whatever Congress passes next.  

But McConnell, during the Tuesday interview, appeared wary, saying that there needed to be a “broad discussion” within the Senate Republican Conference, where lawmakers warned that including state and local funding in the “interim” bill likely would have prevented it from clearing by unanimous consent. 

“You raised yourself the important issue of what states have done, many of them have done it to themselves with their pension programs. There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations,” McConnell said, after Hewitt floated Illinois, California and Connecticut as examples of states that have overly generous benefits for public employees. 

“We’ll certainly insist that anything we’d borrow to send down to the states is not spent on solving problems that they created for themselves over the years with their pension program,” McConnell added.

Current law prohibits states from declaring bankruptcy. But governors have warned they are facing deep economic fallout from the coronavirus, with most states under a stay-at-home order and businesses scaled back or closed altogether. 

The National Governors Association sent a letter to McConnell and other congressional leaders Tuesday saying Congress needed to approve an additional $500 billion for states “in direct federal aid that allows for replacement of lost revenue.”

“These continuing losses will force states and territories not only to make drastic cuts to the programs we depend on to provide economic security, educational opportunities, and public safety, but the national economic recovery will be dramatically hampered,” wrote Maryland Gov. Larry Hogan (R), the chairman of the organization, and New York Gov. Andrew Cuomo (D), the vice chairman.