The $484 billion coronavirus aid package passed by the Senate Tuesday won’t provide any more federal money to states facing an increasingly grim fiscal outlook as revenues dry up due to the pandemic and economic shutdown — and comments from congressional leaders Wednesday suggest that federal relief for state and local governments may not come without a clash.
House Speaker Nancy Pelosi told Bloomberg Television Wednesday that a “major package” of aid for state and local governments will be part of the next phase of coronavirus legislation — and President Trump has signaled support for such aid. Senate Majority Leader Mitch McConnell appears to have other ideas, though.
McConnell wants to ‘push the pause button’: The GOP leader blocked adding more money for state and local governments to the latest package passed by the Senate and continues to resist adding such funding. “I said yesterday we’re going to push the pause button here, because I think this whole business of additional assistance for state and local governments need to be thoroughly evaluated,” McConnell said on Hugh Hewitt’s syndicated radio show. "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 that the ballooning national debt should be part of that evaluation: “I think we need to have a full debate not only about if we do state and local, how will they spend it. But also, we haven’t had much discussion about adding $2.7 trillion to the national debt, and the way that could indeed also threaten the future of the country.”
In a press release, McConnell’s office highlighted his remarks on assistance to states under the header “On Stopping Blue State Bailouts.”
A $500 billion fight: Congress provided $150 billion for state and local government efforts to combat the coronavirus as a part of last month's $2.2 trillion relief package, but the National Governors Association earlier this month called on lawmakers to provide at least $500 billion in additional aid to help states plug massive pandemic-related holes in their budgets and avoid damaging cuts to services. Sens. Bob Menendez (D-NJ) and Bill Cassidy (R-LA) this week proposed a $500 billion fund to be included in the next coronavirus rescue package. “The big question is how much of it can get by McConnell,” The Hill Alexander Bolton writes.
McConnell’s comments may also put him at odds with President Trump, who said Tuesday that he had discussed aid to state and local governments with New York Gov. Andrew Cuomo and that the funding would be part of the next coronavirus legislation, along with money for infrastructure. “We talked about that — Governor Cuomo and myself — and I agree with him on that,” Trump said. “And I think most Republicans agree too, and Democrats. And that’s part of phase four.”
Cuomo told reporters Wednesday, “The president gets it. He's going to work very hard in the next piece of legislation."
Letting states declare bankruptcy instead? In response to a question from Hewitt about “how badly mismanaged some states have been, and their unfunded liabilities,” McConnell also said that he supports allowing states to declare bankruptcy rather than receive federal bailouts.
“I would certainly be in favor of allowing states to use the bankruptcy route,” McConnell said. “It’s saved 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.”
An unpopular idea … or ‘little more than a farce’: Current law prohibits states from declaring bankruptcy, and suggestions to change that have flopped in the past. “The idea of allowing states to file for bankruptcy was raised in the wake of the last recession,” Bloomberg’s Steven T. Dennis and William Selway report. “It drew widespread disdain from Wall Street investors, public employee unions and both Republican and Democratic governors, who said it would unsettle the bond market and cause even the most fiscally sound states to face higher interest rates because of the risk the debt could be wiped out in court.”
Bloomberg columnist Brian Chappatta explains why the state bankruptcy idea isn’t likely to go anywhere this time either. “The concept of state bankruptcy as a solution to get through this unprecedented period is little more than a farce,” he writes, adding:
“As much as McConnell tries, this is not about profligate Democratic governors and their underfunded public pension funds. At a basic, fundamental level, many states will have to impose draconian austerity measures without federal support because governors need to balance their budgets. That means either more state employees joining the ranks of the unemployed, higher tax rates (and therefore less money changing hands in local economies), further neglect of critical public infrastructure improvements, or once again shortchanging the pension promises of tomorrow to make the numbers add up today. Potentially all of the above.
“Withholding state support, in other words, would directly counteract the measures that McConnell and his fellow senators have already set in motion to bolster the American economy. What good is a $1,200 check if states are backed into raising taxes that take most of it away? Will small businesses bounce back if their neighbors are unemployed, or local roads and bridges remain decrepit?”
The bottom line: Pelosi, for one, played down the significance of McConnell’s reluctance to provide money to states. “Let me remind you, this is Mitch McConnell, who said on the floor of the Senate there is no way we will do anything but the $250 billion” to replenish the small business loan program, she said in her Bloomberg interview. “Now, we are up to $480” billion in this week’s bill.