Bloomberg: McConnell Says He Favors Allowing States to Declare Bankruptcy

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Apr 22, 2020

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Senate Majority Leader Mitch McConnell said Wednesday he favors allowing states struggling with high public employee pension costs amid the burdens of the pandemic response to declare bankruptcy rather than giving them a federal bailout.

“I would certainly be in favor of allowing states to use the bankruptcy route,” he said Wednesday in response to a question on the syndicated Hugh Hewitt radio show. “It’s saved some cities, and there’s no good reason for it not to be available.”

McConnell’s statements set up a conflict with House Speaker Nancy Pelosi, who said on Bloomberg Television Wednesday that a “major package” of aid for state and local government will be in the next stimulus legislation considered by Congress.

McConnell may also find himself in conflict with President Donald Trump. The president said Tuesday after meeting with New York Governor Andrew Cuomo that states will need assistance. “And I think most Republicans agree too, and Democrats,” Trump said. “And that’s part of phase four.”

McConnell, a Kentucky Republican, said he blocked additional state and local aid in the latest relief package, which passed the Senate Tuesday and is set for a vote Thursday in the House.

The idea of allowing states to file for bankruptcy was raised in the wake of the last recession. It drew widespread disdain from Wall Street investors, public employee unions and both Republican and Democratic governors, who said it would unsettle the bond market and cause even the most fiscally sound states to face higher interest rates because of the risk the debt could be wiped out in court.

It was also criticized by U.S. lawmakers of both parties during a House hearing that was convened to discuss it in 2011 and was swiftly dropped.

No state has defaulted on its debts since the Great Depression, and even after the last recession, only a handful of cities went bankrupt because governments have broad ability to raise taxes.

The current economic contraction may leave states facing an even worse fiscal crisis than they did a decade ago, which has prompted growing calls for Congress to help them make up for the taxes lost by the nationwide shutdown.

McConnell Says He Favors Letting States Declare Bankruptcy

Senate Majority Leader Mitch McConnell said Wednesday he favors allowing states struggling with high public employee pension costs amid the burdens of the pandemic response to declare bankruptcy rather than giving them a federal bailout.

www.bloomberg.com