Senate majority leader delays aid to states, local governments

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Senate Majority Leader Mitch McConnell's comment about bankruptcy has been interpreted by congressional Democrats and some governors as a signal that the Kentucky Republican favors that option for all states suffering from revenue shortfalls because of the coronavirus.

Senate Majority Leader Mitch McConnell’s effort to slow down direct federal aid to state and local governments has led to widespread criticism after the Kentucky Republican said Wednesday he favors allowing states to file for bankruptcy.

McConnell’s comment came during a radio interview with host Hugh Hewitt in which he explained his decision to have a broad discussion among Senate Republicans about aid to state and local governments when the Senate reconvenes May 4.

“We all represent states,” McConnell told Hewitt. “We all have governors regardless of party who would love to have free money. And that’s why 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.”

However, when the radio host raised the possibility that some states might use their federal aid for their underfunded pension plans, McConnell said he favors changing the federal bankruptcy code to allow state governments to file for reorganization.

“There’s no good reason for it not to be available,” McConnell said. “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’s comment about bankruptcy has been interpreted by congressional Democrats and some governors as a signal that the Senate Majority Leader favors that option for all states.

“Mr. McConnell said, I think states should go bankrupt,” House Speaker Nancy Pelosi, D-Calif., said Thursday. “Oh, really? And not pay the health care workers and the hospitals and the rest. First responders and the rest. Oh really? What made you think that was a good idea? It’s just more notion-mongering to get more attention, I guess.”

McConnell has acknowledged that states are suffering because of the coronavirus. “We know that they have got revenue problems but my view is we have gone so far on the national debt here that the next time we address this issue, the Senate should be back in session, fully up and running with everybody involved in the discussion,” he said at his Tuesday news conference.

Some Senate Republicans already have voice support for federal assistance to state and local governments.

Republican Sen. Rob Portman of Ohio told Fox News on Wednesday, "The next package ought to focus on municipalities that I think, at least here in Ohio, are having a tough time providing public services and critically public safety, fire, police and EMS."

And President Trump expressed his support for state and local government aid as part of a larger package that would include infrastructure.

A bipartisan Senate proposal to provide $500 billion in grants to state and local governments in a new tranche of coronavirus aid won’t be formally introduced until the full Senate reconvenes May 4, according to a spokesman for Sen. Robert Menendez, D-N.J.

“We have received numerous calls from other offices—in both houses—expressing interest in cosponsoring,” spokesman Steven Sandberg said in an email. “We will announce those when the time is right.”

The $500 billion is the amount that has been requested by the National Governors Association.

NGA Chairman Larry Hogan, the Republican governor of Maryland, told Politico that McConnell will "regret" suggesting that states should file for bankruptcy protection. "The last thing we need in the middle of an economic crisis is to have states all filing bankruptcy all across America and not able to provide services to people who desperately need them and further exacerbating the problems of this economic crisis," Hogan said.

The National Conference of State Legislatures estimates state governments could cumulatively experience a $300 billion to $400 billion shortfall in revenue in fiscal 2021.

Menendez is co-authoring the bill with Republican Sen. Bill Cassidy of Louisiana, whose state is among the hardest hit by the COVID-19 pandemic, along with Menendez’s home state of New Jersey.

Menedez issued a statement Thursday evening attacking the concept of allowing states to reorganize their debts.

“Telling our states to throw in the towel and go bankrupt in the middle of a pandemic puts countless lives at risk and is a prescription for catapulting our nation into a full-blown depression," Menendez said in a statement. "It is illogical, immoral and downright dangerous."

“That is why Congress must answer the bipartisan call from our nation’s governors, mayors and county administrators and provide $500 billion in flexible federal funding to address their most urgent needs—and we must act swiftly to keep their governments running and serving the very same people we were all sent to Washington to represent,” Menendez added.

New Jersey Gov. Phil Murphy blasted McConnell’s bankruptcy comment during his daily COVID-19 briefing, calling it “irresponsible” and stressing the need for more federal aid to withstand the current crisis. The Garden State has struggled with persistent structurally imbalanced budgets and a rising pension burden during the past decade.

“This is no time for bankruptcies and wishing bankruptcies,” said Murphy, a Democrat who assumed office in January 2018. “This is the time to stand up on a bipartisan basis and be there for the states in America, not just for the states' sake, but for the American people.”

Fitch Ratings downgraded New Jersey general obligation bonds by one notch on Tuesday to A-minus from A with a negative outlook citing the state’s weak financial position to address a severe recession with weak slim reserves and growing liabilities. The state’s GO debt is also rated A-minus by S&P Global Ratings, A3 by Moody’s Investors Service and A by Kroll Bond Rating Agency.

Andrew Coen contributed to this story.

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