McConnell takes flak after suggesting bankruptcy for states rather than bailouts

“This is really one of the dumb ideas of all time,” New York Gov. Andrew M. Cuomo (D) said during a briefing in Albany in which he warned that bankruptcy declarations by multiple states would lead to “a collapse of this national economy.”

Republicans who panned the idea included Maryland Gov. Larry Hogan (R), chairman of the bipartisan National Governors Association, which has asked McConnell for $500 billion to help states deal with lost revenue.

“Mitch McConnell probably regrets saying that,” Hogan said. “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 all filing bankruptcy all across America and not able to provide services to people who desperately need them.”

McConnell pressed his idea Wednesday during an interview on Hugh Hewitt’s syndicated radio show, arguing that much of the financial strain faced by some states is the result of runaway pension obligations — and that several U.S. cities have used bankruptcy protections to restructure their finances. (Hewitt is also a Washington Post opinion columnist.)

“I would certainly be in favor of allowing states to use the bankruptcy route,” McConnell said. “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.”

The House is expected to sign off Thursday on a $484 billion relief bill that replenishes a loan program for small businesses affected by the pandemic. It also provides additional funding for hospitals and coronavirus testing, two issues Democrats pressed during negotiations.

Republicans balked at adding aid to states and localities to the pending legislation, but President Trump signaled this week that he would be open to including such assistance in the next round of legislative relief.

During Wednesday’s radio interview, McConnell reiterated his view that lawmakers need “to push the pause button” before moving forward with “this whole business of additional assistance for state and local governments.”

“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. “So this is a much bigger conversation than we’ve had providing assistance for small business because the government shut them out, put them down, put them out of business, or assistance to hospitals which were overwhelmed by the covid-19 disease.”

States, he pointed out, have taxing authority, as does the federal government.

Several U.S. cities — most prominently Detroit, in 2013 — have declared bankruptcy under Chapter 9 and used the process to restructure debts and cut costs. That route is currently not available to states.

In a tweet Thursday, Senate Minority Leader Charles E. Schumer (D-N.Y.) dared other Republicans to get on board with the path McConnell is advocating.

“Republican Senators: Raise your hand if you think your state should go bankrupt,” he wrote.

At his briefing, Cuomo said that allowing states to declare bankruptcy amid the pandemic would be “irresponsible and reckless.” He also took issue with a document put out by McConnell’s office Wednesday in support of his views titled “Stopping Blue State Bailouts” — an allusion to many of the states in trouble being run by Democrats.

“This is not the time or the place or the situation to start your divisive politics,” a visibly agitated Cuomo said. “It’s not red and blue. It’s red, white and blue.”

Cuomo also pointed out that McConnell’s state of Kentucky currently receives more federal dollars for services than its taxpayers contribute while the opposite is true of New York.

“It’s your state that is living on the money that we generate,” Cuomo said. “Your state is getting bailed out. Not my state.”

His comments about the wisdom of state bankruptcies echo those of New Jersey Gov. Phil Murphy (D) whose state is also at the epicenter of the crisis.

“Encouraging, explicitly almost hoping for bankruptcies of American states in the midst of the biggest health-care crisis this country has ever faced, is completely and utterly irresponsible,” Murphy said during a news briefing on Wednesday after McConnell’s radio interview aired.

McConnell’s comments also drew a swift rebuke Wednesday from a Republican congressman from New York, Rep. Peter T. King. He seized on a characterization by McConnell that governors are seeking “free money.”

“To say that it is ‘free money’ to provide funds for cops, firefighters and healthcare workers makes McConnell the Marie Antoinette of the Senate,” King wrote on Twitter.

Hogan, who spoke out during a live-streamed interview with Politico on Thursday, also took issue with McConnell’s contention that state aid would primarily help out Democrat-dominated states that McConnell said had mismanaged their finances.

“That’s complete nonsense,” the governor said. “These are well-run states.”

Hogan argued that the federal government has a responsibility to help states respond to the crisis by paying to keep core government services in tact.

“States are the ones who are close to people’s problems,” he said. “We don’t have a printing press like the federal government does. So it’d be nice to get some assistance from them directly.”

Michigan Gov. Gretchen Whitmer (D), whose state has been among the hardest hit by the coronavirus outbreak, also made a plea for aid from Congress during a television appearance Thursday.

“It will undermine everything from public health to education if we don’t get the kind of support we need out of Washington, D.C.,” she said on MSNBC, labeling McConnell’s comments about state bankruptcies “incredibly irresponsible.”

Erin Cox and Brittany Shammas contributed to this report.

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