TOPLINE
States are facing massive budget shortfalls—now forecast to be $650 billion over the next three years—due to the coronavirus, sparking a debate among governors and senators alike over whether they should receive more federal funding or if they should be left to declare bankruptcy. Here is how that debate is taking shape inside and outside of Washington:
Here’s a timeline of the ongoing debate over whether states should receive federal funding to offset … [+]
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TIMELINE
The Senate passed its latest coronavirus relief bill—a $484 billion piece of legislation to help small businesses and hospitals, but it notably did not include any funding for states.
Senate Majority Leader Mitch McConnell (R-Ky.) rebuffed calls for more federal aid to state and local governments, dismissing them as “blue state bailouts” and saying that those facing budget shortfalls should instead declare bankruptcy.
McConnell’s comments drew a sharp rebuke from New York Gov. Andrew Cuomo, who condemned the idea and called McConnell a “grim reaper,” saying that his suggestion was “one of the really dumb ideas of all time.”
“Pass law [allowing states to declare bankruptcy], I dare you,” Cuomo taunted McConnell again during a press conference. “Pass that bill, if you weren’t just playing politics.”
Kentucky’s own governor, Andy Beshear, a Democrat, said over the weekend that he “strongly disagrees” with McConnell’s suggestion: “I hope those comments were off the cuff. I hope they were in reference to something else because bankruptcy for a state would be disastrous,” he told CNN, earning praise from Cuomo for standing up to McConnell.
Michigan Gov. Gretchen Whitmer, also a Democrat, called the idea of state bankruptcies “incredibly dangerous,” while Republican Gov. Larry Hogan of Maryland said McConnell “probably would regret making that comment.”
On Monday, the debate raged on, reaching the White House: President Trump said he opposed to state funding asking why taxpayers should bail out “poorly run states,” (a sentiment echoed by Florida Sen. Rick Scott) though White House economic advisor Kevin Hassett later said that Trump is “willing to negotiate” on the matter.
By the end of Monday, McConnell had conceded, saying he had only made a “suggestion” and was now open to additional federal aid to state governments, but also warned, “we’re not writing a check to send down to states to allow them to, in effect, finance mistakes they’ve made unrelated to the coronavirus.”
Treasury Secretary Steven Mnuchin added to the debate, saying that states with poorly managed budgets should not be rescued by the federal government.
Democratic leaders doubled down on their demand for $500 billion in aid to states in the next stimulus bill from Congress, with Senate Minority Leader Chuck Schumer (D-NY) on Tuesday warning that McConnell’s idea would lead to “hundreds of thousands of vital state and local government employees” being fired or furloughed.
WHAT TO WATCH FOR
Amid all the backlash over his state bankruptcy comments, political experts are now theorizing that could put McConnell’s reelection bid for the Senate in jeopardy. McConnell is running for his seventh term in the Senate, where he’s served as majority leader since 2015. Despite him being a favorite to win reelection with history on his side, his top Democratic challenger, Amy McGrath, is reportedly gaining steam. So far in 2020, she has fundraised $12.8 million compared to his $7.5 million. What’s more, a prolonged disagreement with the state’s governor could be problematic for McConnell, Democrats believe—Beshear has so far earned high approval ratings and national headlines for his handling of the coronavirus. “If I were Mitch McConnell I would not want to be on the opposite side of Andy Beshear,” Ryan Aquilina, the executive director of the Ditch Mitch Fund, a Democratic-aligned outside group, told The Hill.
Crucial statistic
The Center on Budget and Policy Priorities (CBPP) forecasts that states will lose $650 billion over the next three years from budget shortfalls due to coronavirus. That number is higher than the CBPP’s earlier estimates, which projected that states would need at least $500 billion to offset revenue declines.
Key background
In the first stimulus bill—the $2.2 trillion Cares Act—passed by Congress late last month, $150 billion was carved out for state and local governments, but that funding has already been exhausted. Many Democrats and even Republicans have called for more state funding and criticized McConnell’s bankruptcy proposal, arguing that it would have disastrous consequences for the country’s economy. The National Governors Association, led by Republican Gov. Hogan and Democratic Gov. Cuomo, have previously called for $500 billion in aid to state governments to account for budget shortfalls. Counties and mayors have also called for an additional $250 billion in emergency relief.
Further reading
Cuomo Tells McConnell: ‘I Dare You’ To Let States Go Bankrupt (Forbes)
Governors Call For $500 Billion To States Even After Top Republicans Say No (Forbes)
Cuomo: ‘If You Want States To Reopen, We Need Funding’ (Forbes)
McConnell Says States Should Consider Bankruptcy, Rebuffing Calls for Aid (New York Times
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