American states are abruptly facing their worst fiscal crisis since the Great Depression. The Center on Budget and Policy Priorities estimates that more than 25 percent of state revenues have evaporated because of the pandemic. Demands on state health-care budgets, state unemployment systems, and state social-welfare benefits are surging. By the summer of 2022, the state budget gap could total half a trillion dollars.
States need help. Senate Majority Leader Mitch McConnell does not want to provide it. On The Hugh Hewitt Show on April 23, McConnell proposed another idea. Instead of more federal aid, states should cut their spending by declaring bankruptcy:
I would certainly be in favor of allowing states to use the bankruptcy route. 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.”
McConnell expanded on the state-bankruptcy concept later that same day in a phone interview with Fox News’s Bill Hemmer:
We’re not interested in solving their pension problems for them. We’re not interested in rescuing them from bad decisions they've made in the past, we’re not going to let them take advantage of this pandemic to solve a lot of problems that they created themselves [with] bad decisions in the past.
McConnell’s words instantly attracted attention, criticism, even some derision. New York Governor Andrew Cuomo blasted the idea as “dumb,” “irresponsible,” and “petty”:
How do you think this is going to work? And then to suggest we’re concerned about the economy, states should declare bankruptcy. That’s how you’re going to bring this national economy back? By states declaring bankruptcy? You want to see that market fall through the cellar? … I mean, if there’s ever a time for humanity and decency, now is the time.
Cuomo’s fervent rebuttal grabbed the cameras. It did not settle the issue. State bankruptcy is not some passing fancy. Republicans have been advancing the idea for more than a decade. Back in 2011, Jeb Bush and Newt Gingrich published a jointly bylined op-ed advocating state bankruptcy as a solution for the state of California. The Tea Party Congress elected in 2010 explored the idea of state bankruptcy in House hearings and Senate debates. Newt Gingrich promoted it in his run for the 2012 Republican presidential nomination.