Senate Republicans are trying to thread the needle; they want to send money to states and cities to prevent mass job losses, but avoid splashing out cash to governments that spent profligately in the past.
It’s a daunting challenge. Because of the coronavirus, state and local governments face shortfalls of $500 billion or more. Without federal aid, they could throw hundreds of thousands, even millions, of teachers, police, and others out of work, guaranteeing years of high unemployment.
“All of a sudden, you’ve turned this into another Great Depression,” said Bill Glasgall, director of state and local initiatives at the Volcker Alliance, a nonpartisan organization that has studied state and city finances.
House Speaker Nancy Pelosi unveiled legislation Tuesday that would send lower-level governments $1 trillion to weather the pandemic.
Senate Majority Leader Mitch McConnell immediately opposed this, saying that it would be a “blue state bailout” for states mismanaged by Democrats. Many face huge unfunded pension liabilities — $1.6 trillion in total, according to Moody’s the credit rating agency. The Democratic states of Illinois and New Jersey have bigger debt mountains than any others, although McConnell’s home state of Kentucky comes in third, according to Pew Charitable Trusts.
McConnell has suggested states declare bankruptcy and restructure their obligations rather than getting massive dollops of taxpayer cash.
[Click here for complete coronavirus coverage]
But other Republicans want to help states and cities. Sen. Susan Collins, of Maine, a centrist facing a tough reelection this year, has called on President Trump to help replace lost state and local tax revenues. She suggested more flexibility for governments using $150 billion made available in the CARES Act relief bill, enacted this month. This included $1.25 billion for Maine, Collins noted, but strings are attached, such as mandating that the money go to pandemic-related purposes and large cities, which means Maine is left out.
A group of Republican senators met with Trump Tuesday at the White House to discuss legislation written by Sen. John Kennedy of Louisiana that would give states latitude in using the funds. “I certainly can’t speak for the White House, but I thought our meeting today was very positive as we discussed how we could give state and local governments crucial flexibility to help their communities using money they already have,” Kennedy said in a statement afterward.
Trump has sent mixed signals, at times saying he would favor aiding states and cities, but also tweeting that taxpayers should not bail out “poorly run states.”
Asked about this, the White House referred to May 1 comments from spokeswoman Kayleigh McEnany, who said Trump doesn’t “want this to be an excuse for decades and decades of bad Democrat governance that have run some of these states into a financial predicament,” but that he would be interested in negotiating an aid package.
Bill Cassidy, Louisiana’s other Republican senator, has devised legislation to help states cope with cash shortages due to the pandemic but block the money from being used to rescue them from their fiscal profligacy. The bill, written with Sen. Bob Menendez, a New Jersey Democrat, would create a $500 billion fund and aid based on state size, share of national COVID-19 cases, and projected revenue losses due to the pandemic.
Louisiana and New Jersey face the steepest revenue losses, according to Moody’s Analytics.
Senators from hard-hit states do, however, have allies. Republican Mitt Romney of Utah, a state in relatively good fiscal shape, supports aid to states. During a GOP caucus meeting last week, he entered the room carrying a sign that read, “Blue states aren’t the only ones who are screwed.”
