Yesterday the U.K Daily Mail posted an article about some recent comments by Senate Majority Leader Mitch McConnell. The Senator made it clear that the federal government was going to help the states with financial problems caused by the shutdown of the economy but not with financial problems caused by bad management.
The article reports:
Mitch McConnell said Wednesday that he is OK with states going bankrupt instead of increasing federal bailouts even further – as Democrats demand more money for state and local governments be included in the next coronavirus relief bill.
‘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,’ McConnell lamented.
‘That’s not something I’m going to be in favor of,’ he continued in an interview with conservative radio talk show host Hugh Hewitt Wednesday.
‘I would certainly be in favor of allowing states to use the bankruptcy route,’ the Kentucky Republican senator said. ‘It saves some cities. And there’s no good reason for it not to be available.’
Many of the states looking for bailouts need bailouts because of unfunded liabilities such as pension funds and retiree medical expenses. The only way these problems are related to the coronavirus is that there is reduction of tax revenue coming in. However, these problems were eventually going to occur with or without the coronavirus.
The article notes:
He also insisted, however, that he didn’t want to send money to states just to have them used the money to bail themselves out of preexisting issues, like a pileup of pension debts.
‘You know, 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 programs,’ McConnell told Hewitt.
‘There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations,’ he continued.
The Senate Majority Leader said he knows that states’ would rather have money given to them by the federal government in another large-scale coronavirus stimulus package.
I agree with Senator McConnell. Each state is responsible for its own financial situation. That’s part of what federalism is about. States who have managed spending better will come through this crisis in better shape. It is my guess that states that have consistently mismanaged money and raised taxes will have people moving out of their states in the coming months.