Senate Majority Leader Mitch McConnell (R-Ky.) is facing blowback from across the political spectrum after he suggested states should be able to declare bankruptcy as they face severe budget holes sparked by the coronavirus outbreak.
The debate over providing more federal funding for state and local governments is emerging as an early lightning rod in the next coronavirus bill, with Democrats and some Republicans asking for hundreds of billions in additional assistance.
But McConnell sparked his own political firestorm when, in response to a question from radio host Hugh Hewitt, he said he supported letting states declare bankruptcy and positioned Republicans as cautious of providing them with additional federal relief.
“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.
The remarks were met with quick and fierce backlash by lawmakers and local officials from states hit hard by the spread of the coronavirus, including members of McConnell’s own party.
Maryland GOP Gov. Larry Hogan predicted on Thursday that McConnell would ultimately regret his comments — if he didn’t already.
“Mitch McConnell, I think, probably regrets saying that,” Hogan said during a Politico Playbook event. “If he doesn’t regret it yet, I think he will regret it.”
“The last thing we need in the middle of an economic crisis is to have states filing bankruptcy all across America and not able to provide services to people who desperately need them,” he added. “I’m hopeful that we’re going to be able to … convince Sen. McConnell that maybe he shouldn’t let all the states go bankrupt.”
Rep. Pete King (R-N.Y.), who is retiring, called McConnell the “Marie Antoinette of the Senate.”
“McConnell’s dismissive remark that States devastated by Coronavirus should go bankrupt rather than get the federal assistance they need and deserve is shameful and indefensible,” added King, whose home state has been hard hit by the coronavirus.
State officials warn that without additional federal assistance they face deep budget holes as businesses have scaled back or closed altogether, depriving them of a tax base. At the same time many are increasing their spending on health care and to help those financially affected by the pandemic. Forty-three states have issued stay-at-home orders, while three additional states have partial orders.
Unlike the federal government, which has borrowed trillions to help fund its coronavirus relief efforts, every state but Vermont has a requirement to maintain a balanced budget. Current law doesn’t allow states to declare bankruptcy.
“This is one of the really dumb ideas of all time,” New York Gov. Andrew Cuomo (D) said during his press briefing Thursday.
“Not to fund state and local governments is incredibly short-sighted. They want to fund small businesses, fund the airlines, I understand that, but state and local governments fund police and fire and teachers and schools. How do you not fund police and fire and teachers and schools in the midst of this crisis?” Cuomo added.
Illinois Gov. J.B. Pritzker (D) said “there are an awful lot” of senators that disagree with McConnell; Michigan Gov. Gretchen Whitmer (D), who is viewed as a potential vice presidential contender, called it “incredibly irresponsible,” and Louisiana Gov. John Bel Edwards (D) called it “grossly irresponsible.”
The National Governors Association, led by Hogan and Cuomo, is asking Congress to approve an additional $500 billion “in direct federal aid that allows for replacement of lost revenue.”
But McConnell, during the radio interview, noted that any additional assistance would have to be “thoroughly discussed” by the Senate Republican conference.
“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.
Congress initially included an initial $150 billion in aid for state and local governments during last month’s $2.2 trillion package. The $484 billion coronavirus packaged which passed the Senate on Tuesday, and passed the House Thursday, did not include additional funding.
Including money in the latest bill, Republicans warned, would make it unable to pass the Senate without bringing lawmakers back to Washington. Some GOP senators have said that they are wary of providing money to state and local governments if it could be redirected to unrelated funds or to make up for “bad” budget decisions.
A GOP leadership aide noted that McConnell’s remarks were in response to Hewitt, who raised the issue of states being able to declare bankruptcy, and not a signal of GOP strategy going forward.
McConnell has said that Congress will not pass an additional coronavirus bill until senators return to Washington, which could happen as soon as May 4, arguing that they should “pause” to see what parts of the nearly $2.8 trillion already appropriated by Congress are working, and which parts aren’t.
GOP senators were largely mum on Thursday on if states should be allowed to declare bankruptcy. The Democratic Senatorial Campaign Committee (DSCC) sought to tie vulnerable incumbents in key battleground races to the leader’s comments.
“Notably: not one Republican Senator on the ballot in November has spoken out against McConnell’s position that states and cities should go bankrupt instead of receiving support from the federal government,” the group said.
Sens. Bill Cassidy (R-La.) and Bob Menendez (D-N.J.) have proposed giving state and local governments an additional $500 billion. Menendez called McConnell’s comments “illogical, immoral and downright dangerous.”
Cassidy tweeted out a link to a story about McConnell’s comments adding that the “shutdown has caused lost tax revenue for local, state government, making it hard to provide essential services, like police, fire and sanitation.”
But some GOP senators echoed McConnell’s concerns.
“NY and other left wing states have been terribly mismanaged for years. Kowtowing to labor unions by approving generous taxpayer funded benefits in exchange for votes has left them with billion dollar shortfalls. Blame yourself @NYGovCuomo, not @senatemajldr,” Sen. Marsha Blackburn (R-Tenn.) tweeted.
Lauren Aronson, a spokeswoman for Sen. Ted Cruz (R-Texas), noted that Congress has already passed a “significant” amount of assistance related to the coronavirus.
“Sen. Cruz has expressed concerns that allowing states to use that relief to prop up their underfunded pension plans would be a windfall paid – in part – by taxpayers from more fiscally prudent states like Texas. He instead believes these funds should be directed towards new, coronavirus-related expenditures and also to ensuring resources for vital law enforcement responsibilities,” she added.
McConnell’s hesitation for supporting additional state and local funds puts him at odds with both congressional Democrats and Treasury Secretary Steven Mnuchin and President Trump, who have signaled they are open to including additional money in the next coronavirus relief package.
House Speaker Nancy Pelosi (D-Calif.) accused McConnell of “notion mongering” and threatening to let public employees go without pay.
“And what the distinguished leader on the Senate side, Mr. McConnell, said … ‘I think the states should go bankrupt.’ Oh really? And not pay the health care workers, the public hospitals, first responders, and the rest. Oh really? What made you think that was a good idea?” Pelosi said. “It’s just more notion mongering to get attention, I guess.”