States Seeking a Bailout
Trump is Refusing to Play
Cristal M Clark
This week we’ve seen a lot of coverage about states needing federal funding in an effort to continue to stay operational. At one point some members of Congress have suggested another option, Senate Majority Leader Mitch McConnell (R-Ky.) recently suggested that states should file for Bankruptcy. A suggestion backed by US President Donald Trump.
Here’s where I see his point though, for years states, cities and municipalities have mismanaged funds, lost money and spent in a rather frivolous manner at the expense of the taxpayer. So why should they get a bailout without conditions? Which is what many are asking for, they feel the terms and conditions in some cases that Trump is touting for are simply not in line with what states want to do. Immigration being one of the terms and conditions, Trump on Tuesday suggested he would approve money but only if states cracked down on immigration policies in sanctuary cities.
Which leaves everyone with no real answer here. States are having to furlough or lay off employees in mass numbers which will eventually hit police and fire departments nationwide due to lack of funding coming in to states through tax revenues. State, cities and municipalities do face insolvency, it will be the result of decades of fiscal mismanagement.Yes, the federal government does have an obligation to help cover the costs of addressing the Covid-19 pandemic and Congress has already sent states unprecedented aid.
Trump’s point is simple, unforeseen circumstances is one of the reasons states should have rainy day funds.Wyoming had an entire year’s worth of revenue saved away, yet Illinois and Kansas had just minutes of revenue saved. Puerto Rico filed for bankruptcy, its debt equaled about three times its annual revenues. When Detroit entered bankruptcy in 2013, the city’s debt was 13 times its annual revenues. A few months or even a few years of lower revenues won’t create bankruptcy situations for states but prolonged, systemic mismanagement does play a very large role in states going bankrupt.
The federal government has provided state and local governments with direct grants worth $150 billion to help cover COVID-19 expenses. But that is not what some states are using the funds for. Governors are asking for flexibility to use these funds for non-pandemic costs. That’s right, some have used the money for temporary pay raises and bonuses for public-sector workers. Millions of Americans have lost their paychecks and some states and local governments want to use the money for raises and bonuses, while Trump has stated rather publicly that he does not support that type of spending what-so-ever.
So while I would not be a huge fan of seeing states go bankrupt but perhaps we should consider letting some fall for no other reason other than they can’t seem to manage funds properly in the first place.
Right now just in the United States we have unprecedented unemployment rates, as we struggle to get economies up and running we will still face long term unemployment as businesses were forced to reduce their workforce during the shutdown or shut down completely and will either not open again or for those that do, they are looking at a large reduction in staff.
So cities, municipalities and states will in fact see a long term loss in revenue and should be utilizing the business model of the private sector. No raises, no bonuses, cutting pay, and operating with less staff until they can stabilize and learn to manage a budget properly.
Cristal M Clark