US governors rebuff McConnell state bankruptcies proposal

A proposal floated by Republican Senate majority leader Mitch McConnell to let coronavirus-stricken states go bankrupt has generated fierce blowback from governors of both parties.

Mr McConnell told conservative radio host Hugh Hewitt on Wednesday that he “would certainly be in favour of allowing states to use the bankruptcy route”.

“It saves some cities,” he said. “And there’s no good reason for it not to be available.” 

States currently have no way to declare bankruptcy, although cities and municipal governments can seek permission to do so through a proceeding known as Chapter 9, which allows them to restructure their debts while keeping essential government functions running. 

The Senate majority leader pushed back against the idea that the hardest-hit states should be given limitless federal assistance, decrying what he dubbed “blue-state bailouts”.

“I think this whole business of additional assistance for state and local governments needs to be thoroughly evaluated. There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations,” he said. 

Multiple US governors expressed deep alarm over Mr McConnell’s comments. 

On Thursday, Andrew Cuomo, New York governor, a Democrat, said Mr McConnell’s suggestion was “one of the really dumb ideas of all time”.

Mr Cuomo noted that New York was a net contributor to the federal budget — to the amount of $116bn a year — while Mr McConnell’s state, Kentucky, was a net recipient. “It’s your state that is living on the money we generate. Your state is getting bailed out — not mine,” he said.

Mr Cuomo also warned that bankruptcies in states like New York and Michigan would cause profound damage across the country: “You will see a collapse of this national economy.”

“I was really disappointed to see Senator McConnell’s comments about letting the states go bankrupt,” Gretchen Whitmer, Michigan’s Democratic governor, told MSNBC on Thursday. “I just think that it’s incredibly irresponsible.”

Larry Hogan, the Republican governor of Maryland, also criticised Mr McConnell’s comments, calling the majority leader’s suggestion “complete nonsense”.

“I’m hopeful that we’re going to be able to — between the administration and the 55 governors in America, including the territories — we’re going to convince Senator McConnell that maybe he shouldn’t let all the states go bankrupt,” Mr Hogan said in an interview with Politico Playbook.

Cities and states have said that they are in dire need of more financial assistance as their revenues plunge with large swaths of business shuttered by coronavirus lockdowns. They have warned that the effect of shuttered economies could blow a $500bn hole in state tax revenues and warned that deep cuts to services like education and other public services could follow, without additional federal help. 

An initial $2.2tn economic relief package passed by Congress last month created a $150bn coronavirus response for state and local governments. 

Democratic congressional leaders had hoped that a subsequent $484bn interim bailout package for small businesses would also include additional relief for states and local governments. However, that measure was ultimately not included in the legislation, which is currently working its way through Congress and is expected to be signed into law by US President Donald Trump later this week.

The spat is the latest example of the deepening rancour and partisan divide being pried open by the nation’s response to the pandemic, as Democratic states, which have been among the hardest hit by the virus, demand more help from Congress and the federal government.

Nancy Pelosi, the Democratic speaker of the House, told the Washington Post that she believed Mr McConnell would ultimately fall in line with Mr Trump’s desire to give cities and states more funds to sustain them through the crisis. 

She also slammed Mr McConnell’s “blue-state bailout” rhetoric.

“Look at the language of Mitch McConnell: ‘I’m not bailing out blue states, they should go bankrupt.’ Really? Really?” Ms Pelosi told the newspaper. “How insecure is he in his own race in Kentucky to have to resort to that pathetic language?”

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