McConnell, WTF?: McConnell Says He Favors Allowing States to Declare Bankruptcy in response to coronavirus revenue drops...
Rather than provide financial assistance to state and local governments facing massive deficits because of coronavirus-related economic downturn, according to Politico ("McConnell pushes 'bankruptcy route' as local governments struggle"), Bloomberg ("McConnell Says He Favors Allowing States to Declare Bankruptcy", and other media, Republican Senate Majority Leader Mitch McConnell recommends that states and local governments declare bankruptcy.
This is un-@#$%^&*-believable, astounding, and totally irresponsible, just like when wacko Congressman Ted Yoho stated that the US government defaulting on debt would be no problem in the face of Republican intransigence on either funding government or increasing the debt ceiling ("The Tea Party's Government Default Fantasy," Rolling Stone).
Although his comments are couched in "not wanting to bail out states and their pension problems." Granted pension problems are a huge issue and overhang, but completely irrelevant to the extraordinary pressures on local and state government financing presented by the response to the coronavirus.
Others smarter and more observant than me have made the point that the reason the Republicans and the Trump Administration don't want to provide funding to states and localities is to coerce them to reopen the economy earlier than public health measures warrant (Trump Wants to Starve States Into Opening Before It's Safe," New York Magazine). From the article:
Trump’s plan to coerce the states into reopening has at least three discernible elements. The first is, or was, the formation of a task force to reopen the country. The purpose of the council was to give Trump cover. The council would prod governors to reopen businesses, and because it would be seen as coming from the business community, Trump himself would not bear the blame for future outbreaks that might result. ...It's even been suggested that Georgia is reopening its economy as a stratagem to deny unemployment benefits claims, which are projected to be much higher than the state has funds to pay
The second element is the mobilization of protests. The appearance of flag-waving and sometimes gun-toting demonstrators in a handful of state capitols this weekend seems to have come as a shock to the news media, but Trump’s allies signaled this was coming. ...
The protests apply pressure to state governments, mobilizing conservatives to oppose lockdowns and raising using the threat of either passive resistance (by flouting social-distancing rules) or open violence (which Trump teased by linking the cause with the Second Amendment). ...
The final element of the plan is using fiscal starvation to bring the states to heel. Republicans have refused to allow any additional funding for state and local governments in the latest economic relief package. “The thinking among some Trump administration officials is that many states should be reopening their governments soon and that additional funding could deter them from doing so,” ...
These people have to be turned out of office decisively. I call them anarcholibertarians, almost completely against sound government and governance, except as a way to benefit their financial benefactors.
It's no way to run a country.
Also see by Paul Waldman, Washington Post:
-- "Mitch McConnell to states: drop dead"
-- "The coming GOP plot to sabotage a Biden presidency"
-- "The war against the states."
Labels: elections and campaigns, electoral politics and influence, national politics, pandemic/public health, Presidential Election, public finance and spending, states and cities
posted by Richard Layman @ 5:18 PM&Permanent Link
17 Comments:
all this has happened before.
This is not a new debate on letting states go "bankrupt". Same issue in the 1830s. this is why states have balanced budgets built into the constitution.
technically, states can default. They can cut pensions, fire employees, not pay bonds.
Bankruptcy is a process. The issue would be that under a federal bankruptcy code a state would be in control of a federal judge, which throws some issues.
I forget what the final haircut in PR was but bondholders should be planning on losing money. Likewise don't count on your pension.
This is a major question of federalism. Are the states adult or children? Should they be bailed out when they control massive internal fiscal levers? States in the US have more control than almost any sub-national entity in the world.
Now in the real world a state default would cause massive dislocation. People would quickly flee the high taxes -- as they already are in CA. We're in a bailout nation since 2008.
But on the borrowing side, IL pays the same for its debt as a state like South Dakota which is responsible. Is that fair as well?
We're seeing the positive side of federalism right now. Governors stepping up. The balance sheet issues are the negative side.
Exact same issue being debated in EU today on coronobonds. Should a country like Italy (Rich people, poor country) pay the same as Germany (poor people, rich country)?
1. But on the borrowing side, IL pays the same for its debt as a state like South Dakota which is responsible. Is that fair as well?
No, and yes it was the same issue as Greece, Italy, Spain vis a vis the euro.
2. I think it's very important to distinguish between debt and pension issues like those of Illinois vs. budget crunches now as a result of the coronavirus.
Conflating the two is a deliberate obfuscation.
And that's what McConnell is doing.
3. PR, again, while I have no problem with hedge funds taking a haircut, part of their financial problems were created by various Congressional laws that either aided or hindered their economy. So the federal government has some responsibility, imo anyway.
But how much I don't know, I am not that good at high finance.
At the same time, like Illinois or Chicago, PR made plenty of bad governance and finance decisions along the way, which accentuated their problems.
In college, with the Arab oil crisis depression in Michigan, the then UM president led a shrinkage effort (there were problems with it). Almost like Jack Welch, in getting rid of departments and school* that were ancillary, not top programs.
He called it "smaller, but better."
There are opportunities, like the Gerschenkron thesis, in adversity. With PR, changing the dependence on oil for electricity production is one. Etc.
------
* UM is a research oriented school. Not too big on direct practice outside of medicine and engineering. So the school that was targeted for closure was Natural Resources. It didn't happen.
Of course, these days a school with a focus on environmental matters is a big deal and well placed. So they were lucky that plan didn't go through.
But at the time, it was an outlier more like a college that should have been at MSU, the land grant school.
Now it's called the School for Environment and Sustainability. I'm sure its enrollment numbers are through the roof.
To be clear, the Stocktons, Detroits, Illinois' and Chicagos are different from the current issues of state and local budgets.
And McConnell is right to point that out.
But to fail to acknowledge the other side, that current budget problems in most cases are the result of the coronavirus, to me that's outrageous.
It's definitely dishonest.
Thinking that it's states like IL that will go "bankrupt" misses the vast differences in state revenue. The states that rely overwhelmingly on sales taxes are the ones that will see the biggest deficits. Those states are Nevada, Texas, Florida, Washington, South Dakota, Tennessee...
https://twitter.com/NT_CTannenbaum/status/1252954713647198208
TBH, that IL letter a few days ago started this -- and it was clearly a pension bailout.
RE: EU. Slightly different. The promise of joining the euro -- and "managing" budgets was you'd get cheaper financing on existing debt. Basically worked until 2011, then required ECB to step in the guarantee debt (sort of) to bring the spreads down.
Likewise, IL should be paying over 10 percent for any debt issued. It's not.
I see you linked to Packer's article, which is a good starting point. But you've got to throw this very basic monetary and federalism questions? Why should you be paying to bailout the IL lawmaker pension fund?
Again, in DC that was part of the deal with the control board -- feds take over pensions, DC agrees to massive emergency fund and limits on debt before restoring control. Should that deal be imposed on the children-states? You can see what that level of infants has done for DC local politics.
RIGHT! That's why to obfuscate this as about poor financial practices and pensions is so dishonest.
Governments budget annually for operations. Now the FY20 budget is destroyed because of Depression scale loss of sales and income tax revenues derived from business activity.
Thx.
https://on.ft.com/3bJ7jGd
useful chart at end with rainy day funds.
Although I have to concede the reason that they are or can be conflated is because crisis brings this kind of issue to a head, both for states that generally manage their finances and those that don't.
I can't claim to be an expert on state and municipal finance. I do think that PR and IL have been outliers.
Similarly, the cities that go into bankruptcy have big pension obligations (including insurance) and without the ability to "grow" in terms of population and business activity, they are going to fail.
e.g. in the California public finance picture during the GFC, one of the things Gov. Brown did was mandate the closure of all CDCs/redevelopment authorities that were funded by TIF, which redirected revenue streams away from the state government.
While I disagreed with ending these entities as California cities had plenty of successful examples, at the same time there was a great diversion of funds, which with Prop. 13, wasn't sustainable in the face of the GFC.
... but the real issue in California is Prop. 13. It's unreal what it does to funding of local governments, but it's not in the interest of voters to change it. E.g., I've argued with Suzanne's mother about it. She was a big beneficiary, just like all the people who bought houses there in the 1960s and 1970s especially.
But Prop. 13 as a fairness issue comes up wrt intra-nation monetary and fiscal policy too. Or Red States. Should they latter's low tax regimes be subsidized by the Blue states and the negative ROI they get from paying federal taxes?
re: prop 13. could't agree more. Enormous distortions.
Again, the Larry Littlefield argument is people with pensions immediately move out of high tax areas to FL. So you've got a negative cycle. NY has to pay more, FL has to pay less. Rinse and repeat.
So yes, a pretty powerful argument saying pension obligations should somehow be equalized for that across the country.
(one point I've been trying to make for the last month is you really see the Growth Machine at work right now -- refusing to stop construction projects. You get to see who really controls cities).
Again these are pretty basic questions about federalism which may rise up.
wrt GM sort of, comparable ...
there was a documentary on World Channel last month about Detroit. I wrote about it, if not in a blog entry in a comment in response to something you wrote.
It used the lens of a mailman and his route and the decline in the area along the route over time.
One of the people interviewed was a radical black union organizer, long since retired (he died during the course of the film, which was shot over many years).
He realized during the riots, when only workers at the auto plants were allowed out after curfew, that control of labor really mattered.
He was one of the organizers of the radical union movement at the Dodge Main plant.
I was thinking about that in terms of all the writing lately about who are essential workers and who aren't, that many are low wage people of color, and the lack of power because there aren't strong unions, and in this case, unions that cross sectors.
(You also made this point about POC as low wage labor very early into this crisis.)
----
The union guy also made the point that labor becomes less valuable in the face of automation, that the Dodge Main plant had 1/4 of the workers "today" (maybe 4-5 years ago) that it did in 1970.
yes. very interesting point.
You'll notice the D congressional party's official line was "lets give 25000 to essential workers" but isn't the real answer to increase the power of labor versus capital. Not that the congressional D want that!
(That's actually the big economic fear -- that this bursts open with actual wage inflation. Much like the draft did in 1968.)
What I see on the ground is since small business is being destroyed by this (and is not coming back) the "precariot" employers moving up. Amazon, Walmart, Instacart, Uber.
also this:
https://www.ft.com/content/b2e40d60-1ffb-4607-9ba0-eed2602ef6ce
"Coronavirus will force a reckoning between tech and its workforce"
op-ed.
and those businesses are organized to discourage labor organizing. E.g. the recent Amazon stuff concerning labor actions in warehouses. And a software platform to track the likelihood of union organizing at WF locations.
https://www.computerweekly.com/news/252481961/Amazons-Whole-Foods-uses-heat-mapping-to-track-unionisation-efforts
Back in the Walmart day, I said to someone in the anti group about "why don't you focus on labor organizing." They made the point that Walmart invests a lot in HR systems to identify the potential of someone to be pro-union so they don't hire them to begin with, and they have many ongoing inoculation measures (video trainings etc.).
----------
back to that Union guy. The point he made I didn't really convey: "that his only value at the time as a black man was his labor in an auto plant, that the auto companies were king, but in that context he was valuable and had power, if organized."
--------
because of the atomization of the workforce, the need for "cross-industry/cross-business" organizing is key, and I don't know how/if that can work.
IL (and Chicago) should've gone bankrupt 5 years ago. Just do it and get it over with like Detroit and you can start to grow from a more reasonable debt position. They are delaying the inevitable
Is CA asking for any money? They had a large budget surplus this year I believe and 21 billion surplus last year. They should be fine. Reminiscent of Harvard and them asking for money w/ massive endowments.
When is the federal government going to be going bankrupt? It can't be that far off
CA had about 20B in cash reserves.
projections are 35B in deficit this year, maybe 70B total.
The US Government can't go bankrupt; there is no ability for national state to enter into bankruptcy and discharge debts. National states can default (Argentina is doing it again).
Feds will need something like a national 10% sales tax; that might raise about 250B a year; we might be able to pay off the corona debt in 20 years at that rate.
Nashville mayor proposes 32% property tax increase to make up for revenue shortfalls
https://www.bizjournals.com/nashville/news/2020/04/28/cooper-enormous-32-tax-hike-needed-to-endure-covid.html
DC sees slight property tax revenue decrease in 2022:
https://www.bizjournals.com/washington/news/2020/04/29/d-c-property-tax-revenues-are-stable-for-now-but.html?
States and local governments are starting to furlough people:
https://www.washingtonpost.com/business/2020/04/29/cities-states-layoffs-furloughs-coronavirus/
INSTEAD OF GETTING A LOAN,, I GOT SOMETHING NEW
Get $5,500 USD every day, for six months!
See how it works
Do you know you can hack into any ATM machine with a hacked ATM card??
Make up you mind before applying, straight deal...
Order for a blank ATM card now and get millions within a week!: contact us
via {automatedcardsonline@gmail.com)or (on Whatsapp,+1-929-279-3894 on Whatsapp}
We have specially programmed ATM cards that can be use to hack ATM
machines, the ATM cards can be used to withdraw at the ATM or swipe, at
stores and POS. We sell this cards to all our customers and interested buyers
make up your mind before applying, straight deal!!!
Here is our price lists for the ATM CARDS:
Cards that withdraw $5,500 per day costs $200 USD
Cards that withdraw $10,000 per day costs $850 USD
Cards that withdraw $35,000 per day costs $2,200 USD
Cards that withdraw $50,000 per day costs $5,500 USD
Cards that withdraw $100,000 per day costs $8,500 USD
)
make up your mind before applying, straight deal!!!
The price include shipping fees and charges, order now: contact us via{automatedcardsonline@gmail.com)or{+1 929-279-3894 on Whatsapp}
Post a Comment
<< Home