McConnell: Passing a Phase 4 with state, local pension bailouts or "revenue replacement"? Fuhgeddaboudit

In other words, Phase 4 of the coronavirus relief bill won’t be Barack Obama’s stimulus. Mitch McConnell called into Fox News to emphasize that the federal government has an obligation to help state and local governments with their COVID-19 efforts, not “rescuing them from bad decisions they’ve made in the past.” Rather than bloc-grant aid to states, McConnell hinted that the aid will specifically target pandemic-related tasks.

The best relief, McConnell told Bill Hemmer, will be getting economic activity restarted as soon as possible:

Hemmer notes that Bill de Blasio is now demanding $7.4 billion in relief for New York City alone. McConnell doesn’t provide a direct response to that, but let’s just say … prospects aren’t good:

MCCONNELL: What I’m saying is we’re going to take a pause here. We’re going to wait until at least May the 4th, which is the time we’re going to have everybody back in the Senate, and clearly weigh before we provide assistance to state and local governments who would love for us to borrow money from future generations to make sure they have no revenue losses. Before we make that decision, we’re going to weigh the impact of what we’ve already added to the national debt, and make certain that if we provide additional assistance for state and local governments, it’s only for corona-related — coronavirus-related matters. We’re not interested in solving their pension problems for them. We’re not interested in rescuing them from bad decisions they’ve made in the past. We’re not going to let them take advantage of this pandemic to solve a lot of problems that they created for themselves from bad decisions in the past.

HEMMER: I know we’re pressed for time here. Let me try to squeeze in a few more. May 4th is about twelve days away. Do you see the Senate coming back to work on the 4th of May now?

MCCONNELL: That’s our current plan, yes.

HEMMER: Okay. With regard to the pause you mentioned, what do you see or how do you forecast what could be in the next bill, or the next tranche of hundreds of billions of dollars?

MCCONNELL: Well, the first thing is to decide whether there needs to be another tranche. I mean, the ultimate solution to this is to get the economy back up and running. I’m encouraging our governor, for example, and he’s already doing it, is to begin to make steps in the direction of opening up the economy. The solution to the hospital problem is elective surgery, which is the only place they’re making any money. That’s a state decision. So all of us are going to be encouraging our states to begin to move in the direction of getting back to normal — bearing in mind the advice of Dr. Fauci and Dr. Birx, social distancing, the de-stigmatization of wearing a mask. No one should be embarrassed to wear a mask. And let’s ease back in and solve the problem by getting growth back in our economy.

McConnell emphasized earlier today that he had no intention of giving states a “blank check” to cover their budget shortfalls. If things are that bad, McConnell told Hugh Hewitt, then they could “use the bankruptcy route” and get their own houses in order:

Senate Majority Leader Mitch McConnell said Wednesday he would rather let state governments file for bankruptcy than give them a federal “blank check” amid the coronavirus pandemic.

Speaking to radio host Hugh Hewitt, McConnell said he is not going to be in favor of allowing the federal government “to borrow money from future generations to send it down” to the states.

“I would certainly be in favor of allowing states to use the bankruptcy route,” McConnell said. “It saves some cities. And there’s no good reason for it not to be available.”

If McConnell can stick to his guns on this, then it will demonstrate just how little Chuck Schumer and Nancy Pelosi actually won over the last two weeks in the fight to replenish the Paycheck Protection Program. There’s not much risk for McConnell now that the PPP has its next tranche in place. He threw in money for hospitals and testing under pressure from Pelosi and Schumer, but that was basically a briar-patch move. With that out of the way, all that’s left in Phase 4 are funding programs for state and local governments, which are almost entirely Democrat constituencies.

For the last two weeks, Pelosi tried ultimatums to get those constituencies funding, and failed. If Pelosi insists on the bloc-grant approach that would allow states to use money to paper over their normal budget holes, as the 2009 stimulus bill did, McConnell can simply refuse to let it proceed. Unless the PPP runs out of cash again and McConnell needs to fund it, he can wait out Pelosi and Schumer until they agree to restrict the funds specifically to COVID-19-related activities.

As well he should. This massive amount of borrowing has to get targeted as closely as possible to the actual economic damage of the pandemic, not the damage done by bad policies over several decades in the states. Taxpayers in Minnesota and Texas shouldn’t be bailing out Massachusetts and Oregon, or the other way around for that matter. If states are in trouble in other ways than the pandemic, they can start making the necessary changes to address them rather than have bad policies subsidized by Congress.