As the U.S. Congress puts the finishing touches on a deal for the next round of coronavirus relief funds, Senate Majority Leader Mitch McConnell looks to have proposed a radical alternative to funneling billions of additional dollars to struggling state and local governments. His solution: to give states the ability to declare bankruptcy.
As reported by Politico, McConnell mentioned the bankruptcy option first while guesting on conservative commentator Hugh Hewitt’s radio show. During the interview, McConnell expressed trepidation over the further use of federal money to buoy states that are struggling economically due to the COVID-19 pandemic and the suspension of commerce that has resulted from social distancing and stay-at-home orders.
McConnell stated that affected governments would likely prefer a bail-out from the federal government to declaration of bankruptcy but expressed that it would come at the expense of future generations.
“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.”
The move to allow states to declare bankruptcy would be a radical one. As it stands, states are unable to declare bankruptcy, and any reworking of the current bankruptcy code would likely require substantial legislation at the congressional level. To say that would be a tough sell for a legislative branch that has already been at odds over how to handle COVID-19 is probably a massive understatement.
On Tuesday, the Senate passed an interim relief package approaching $500 billion. That funding has been earmarked for small business loans, hospitals and the expansion of coronavirus testing. The latter element, as well as how much money would actually go to small businesses, had been points of contention between Democrats and Republicans as they worked to reach an agreement during the final hours before the Senate was to vote on the package.
Meanwhile, some states have taken matters into their own hands — against the advice of health experts — to jump-start their respective economies. Governors in the southern states of Georgia, South Carolina and Tennessee have indicated they will ease restrictions on businesses that have suspended their operations to aid in social distancing efforts, per NBC News.
Gerardo Chowell, an epidemiologist at Georgia State University’s School of Public Health, told NBC that reopening the economy too soon would lead to another wave of coronavirus infections.
“If we go back to business as usual, it’s going to happen,” he cautioned.