As job losses and economic lockdowns have dried up state revenue streams during the coronavirus pandemic, right-wing media are seizing the opportunity to force those state governments into insolvency and bankruptcy — just when people are most in need of government programs for help.
Gutting worker pensions has long been a right-wing priority, complete with dire warnings of insolvency and disaster. But the reality is that most state plans are well-funded, and there is no systemic shortfall — the alleged problem really comes from accounting that measures only the current value of saved assets against all future liabilities. But with the immediate halt of so much revenue due to shutdowns to stop the spread of coronavirus, states are facing a crisis never before seen.
And this crisis goes beyond just pensions, with states facing the prospect of having to cut massive amounts of spending from vital public services. State governments will need federal aid, a policy debate that has already begun to follow up on federal assistance already given to businesses.
On April 22, conservative talk radio host and NBC News contributor Hugh Hewitt interviewed Senate Majority Leader Mitch McConnell (R-KY), during which Hewitt advanced the idea of creating a new law to allow for states to go bankrupt — which currently cities can do, but state governments cannot — in order to default on pension obligations to their public workers (in the name of “reforms” to those pension plans, as Hewitt put it).
“A lot of the state governments are going to be smashed up by this,” Hewitt bluntly stated. “But there is no Chapter 8 [for states] in the bankruptcy code. … Who are you going to task to lead the effort on deciding what to do or not to do for the states?”
“I would certainly be in favor of allowing states to use the bankruptcy route,” McConnell went on to explain. “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.”
Very quickly, other right-wing media outlets caught on, with Fox & Friends co-host Steve Doocy touting that “if a state were to do what some cities are able to do and declare bankruptcy, they could reduce pensions [and] bond debt.” Sean Hannity also declared: “I'm glad Mitch McConnell [is] rightly saying you're not going to balance your budgets and we're not going to fund everything that you've screwed up in your states. We are going to fund COVID relief and COVID relief only.”
During his coronavirus update press conference Thursday, Gov. Andrew Cuomo (D-NY) tore into McConnell’s pronouncements about a “blue state bailout” as being both hypocritical and an abandonment of the same public workers who are being celebrated as heroes. From the New York Daily News:
Cuomo questioned the entire premise of McConnell’s bankruptcy parlay by noting that, contrary to New York, the Republican’s home state takes out more cash from federal budgets than it contributes.
“His state, the state of Kentucky, takes out $138 billion more than they put in,” Cuomo noted. “New York puts in more money to the federal pot than it takes out ... Senator McConnell, who’s getting bailed out here? ... Your state is getting bailed out, not my state."
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If McConnell gets his way, Cuomo said the people on the front-lines of the battle against the virus will pay the price.
“State and local governments fund police and fire departments and teachers and schools. How do you not fund police, fire and schools in the midst of this crisis?” Cuomo said.
Now, many states are fiscally prudent and have been for decades. But plenty of others are not, and the pandemic that will certainly claim more than 50,000 American lives — and which has tanked the U.S. economy — has also utterly exposed those states’ precarious finances.
Look at how many people various states employ. California state and local governments employ more than 883,000 people and Texas 563,000. California’s population is around 40 million, Texas’s just under 30 million. That looks sort of proportional, doesn’t it?
New York, by contrast, has 623,000 employees on public payrolls and a population of under 20 million. That jars. How to compare the states? Use the metric of public employees per 10,000 in population. California’s number is 228, Texas’s is 209 and New York’s a whopping 316 government workers for every 10,000 people in the state.
It is true that some states face genuine financial difficulties in their pension programs. Hewitt’s column lambasted Illinois and Connecticut as states where this is a major issue — but in fact, McConnell’s own state of Kentucky is also in dire straits on this measure.
However, New York is not such a problematic state. Quite the opposite: For years, it has been in the top five of the 50 states for its pension solvency, and it’s also well ahead of both Texas and California, the two other large states to which Hewitt directly compared it — while Kentucky is in the last place, 50th out of the 50.
In addition, the National Association of State Budget Officers’ report on the fiscal health of the states shows that New York has continued to be in a solid position overall, maintaining a positive balance of expenditures to total resources in the state’s general fund as well as a healthy amount in its rainy day fund.
Time magazine explained that “the typical state had a record-high average of almost 8% in their rainy-day funds” before this crisis — but that “no state has enough cash tucked away to offset this brutal economic gouging,” and that the problems are now going on across all sorts of political lines.
Trying to keep that disaster at bay, both states and local governments have been aggressively lobbying the federal government for some relief. Reading through the lobbying disclosure reports on file with the Senate is like a geographic tour of the country; states like Georgia and Nevada have lined up top-tier lobbying shops with COVID-19 as the express reason for the hire, according to their Senate disclosure forms. But places like Johnson City, Tenn., Barstow, Calif., and Akutan, Alaska, have also specified the pandemic as reasons for spending money lobbying Congress.
The government cannot afford for states to lose millions of workers in the midst of this crisis. Unemployment insurance, food assistance to poor families and education programs for students with special needs are all funded, at least in part, out of Washington, D.C., but administered by states and local governments. “A lot of what the federal government does is actually through state and local,” says Max Stier, the President and CEO of the Partnership for Public Service, an advocacy group that promotes civil servants. “State and local workers are fundamental to delivery of services.”
