Should states be allowed to declare bankruptcy? Here’s what each side is saying

Ty Aravazhi Contributor
Should states be allowed to declare bankruptcy? Here’s what each side is saying
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I Declare Bankruptcy: A heartbreaking 26 million American workers are out of a job, and several states are struggling to manage their economies, specifically as it relates to their finances. While the nation continues to adapt to the erratic consequences of the coronavirus, Congress is being called on to support state governments. Discussions to funnel hundreds of billions of dollars to cash-strapped states have emerged, and it is dividing Congress into unexpected camps. Senate Majority Leader Mitch McConnell has firmly cast doubt on the value of sending money to states. Calling it a “blue-state bailout”, he has controversially suggested that struggling states should file for bankruptcy protection. Several members of the right, left, and center have vehemently rebuked McConnell’s remarks.

On the Left: Many liberal voices and outlets have argued that allowing states to declare bankruptcy would be a “shocking abdication of responsibility”. Jamelle Bouie, at the New York Times, stresses that allowing state bankruptcy “would undermine bond markets, push up interest rates and raise the cost of investment.” Others have also pointed to McConnell’s apparent hypocrisy in wanting blue states to go bankrupt while his own state of Kentucky relies heavily on federal funding. In 2017, nearly 40% of Kentucky’s overall budget came from the capital, making it the fourth most DC-dependent state. Paul Krugman, at the Times, also balked at the idea that the current fiscal crises are limited to blue states, as states like Florida, Kansas, Texas, and Kentucky’s budgets are all overwhelmed.

On the Right: Some Republicans have bucked party lines in an uncommon show of defiance, openly voicing their disapproval of McConnell’s suggestion. Most notably, Congressman Pete King of New York likened McConnell to Marie Antoinette, explaining “his dismissive remark that States devastated by Coronavirus should go bankrupt rather than get the federal assistance they need and deserve is shameful and indefensible.” Moreover, others have argued that doing so would minimize each state’s autonomy and incentivize future fiscal irresponsibility. Lastly, E.J. McMahon of the New York Post shifts blame to individuals states for their current predicaments. He suggests, “[Governor] Cuomo perpetuated New York’s already heavy reliance on the volatile incomes of the highest-earning 1 percent, whose investment gains have crashed with the final markets…Cuomo did far too little build up the state’s core budget reserves.”

Flag This: As negative health and economic data points continue to worsen, American states are struggling to keep their head above water. State governments are attempting to be self-sufficient, but they are depleting their own budgets as millions of Americans file for unemployment in their jurisdictions. Governor Cuomo of New York reiterated, “the last thing we need in the middle of an economic crisis is to have all states filing bankruptcy all across America and not be able to provide services to people who desperately need them and further exacerbating the problems of this economic crisis.” For that reason, leaders from across the political spectrum are advocating that the federal government should capitalize on its virtually unlimited borrowing power to save public sector jobs and soften the blow of the oncoming recession.