Senate Majority Leader Mitch McConnell has been under fire for his suggestion that states declare bankruptcy rather than seek federal bailouts. McConnell’s view is that many states like Illinois were near bankruptcy in years before the pandemic because of irresponsible union contracts that agreed to crippling pension plans. There are good-faith reasons to question the proposal as voiced by New York Gov. Andrew Cuomo as well as reasons to advocate the bankruptcy approach, including a concern of how such declarations will impact loan money rates etc. However, the President of the Illinois Senate Don Harmon just gave McConnell a massive boost by demanding a $40,6 bailout, including a $10 billion pension bailout. I have previously criticized my home state for these contracts that were cavalierly accepted by politicians over the years with little concern for the ballooning debt.
In a column on Friday, even editorial board of the Chicago Tribune has criticized the Illinois Senate’s request for the $41.6 billion federal bailout:
“Let’s stipulate that Don Harmon, rookie president of the Illinois Senate, laid a rotten egg with his recent letter asking members of Congress to give Illinois a $40.6 billion bequest. Assorted politicians and pundits have scorned Harmon’s inclusion of a $10 billion pension bailout, as if a sudden pandemic created a pension crisis that, in fact, Harmon and his fellow Springfield lawmakers spent decades creating,.”
The Tribune editorial board added that “taxpayers across the country should not be responsible for Illinois’ financial mismanagement and particularly its unfunded pension liabilities.”
This could emerge as a blue/red state division. McConnell is not backing down. However, it is highly unlikely that the Congress would amend the law to allow such an unprecedented move toward widespread state bankruptcies. There will be some form of bailout but that does not address the underlying questions.
The media has pounced. However, there is a valid concern as raised by the Illinois demand about the use of bailouts to address waste or excessive spending before the pandemic. It is a difficult question to balance. States that have been more financially responsible do not want to subsidize states that have a long history of debt spending. Instead of discussing this issue, the media is hitting McConnell as wanting states to go bankrupt. In other words, in attacking McConnell for playing politics, many are playing politics by making McConnell (not the underlying concerns) the focus of the bailout question. There is a difficult question here in how we are going to address pre-pandemic debt while getting states back into operation. There is also a growing question about a debt that could destroy the dreams and future of an entire generation.