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Tags: mitch mcconnell | bankruptcy

McConnell's Idea to Give States Option of Bankruptcy Not That Crazy

mitch mcconnell in front of an american flag
Sen. Mitch McConnell, R-Ky. (Getty Images)

Steve Levy By Friday, 24 April 2020 01:33 PM EDT Current | Bio | Archive

Sen. Mitch McConnell created quite a firestorm by suggesting that some states consider declaring bankruptcy, rather than seeking federal assistance to deal with their cavernous Coronavirus budget holes.

As a pundit who has both promoted federal assistance to states and localities in the aftermath of this crisis, while also, in the past, having advocated government bankruptcy for poorly run governments, I would suggest that there is a middle ground between these two options.

McConnell is correct in noting that many states, even before the crisis, have been brought to the fiscal precipice via their own irresponsible actions, including the granting of overly generous pension systems. It is unreasonable to suggest that federal taxpayers, particularly the next generation, should bail out those jurisdictions for their careless spending.

On the other hand, much of the pain state and local governments will soon experience emanates from the loss of sales tax revenue and fees that are generated by the normal economic engine. A bailout for those purposes is not rewarding irresponsible behavior.

The loss of anticipated revenues will lead to the closure of health centers, parks, police precincts and fire departments. That's not a bailout of the state officials; it's a bailout of the residents — that's all of us — who depend on these services.

Excessive pension systems, however, are a whole different ballgame. State officials throughout the nation, often in exchange for political endorsements and donations, have been writing checks to public employee unions that they can't cash.

The average New York City firefighter now retires with a six-figure pension. There are numerous public retirees in New York taking in over $200,000 a year. The city's yearly pension contribution increased 2,900% ($164 million to $4.8 billion) from 2000 to 2017.

Most states maintain a defined benefit pension system, which means pensioners are guaranteed their full monthly payments, regardless of how much money is in the fund. So, when the fund loses huge swaths of its holdings after a market collapse, taxpayers are still required to make up the difference. That could mean massive property tax increases for local residents.

Any protections offered by the feds should be in the form of loans to prevent rate shock. But there should be strings attached. For instance, states have been allowing pensions to grow exponentially by allowing overtime and other extraneous salary boosters to be factored into pension calculations.

The average overtime earned by New York Port Authority cops near retirement was $56,000, thereby raising their yearly pension by 50%-60% of that amount. Meanwhile, many uniformed officers throughout the nation are eligible to retire with pensions after only 20 years of service.

While some reforms have been enacted for future employees, they don't apply to existing personnel. So here's the deal: If you want a pension loan, you must first end the padding of pensions through overtime, and raise the 20-year retirement threshold.

Let's also consider New York's Metropolitan Transit Authority (MTA), which is seeking a $3.9 billion federal bailout. Much of their fiscal woes is surely due to a 60%- 90% drop off of ridership (depending on the line) since the virus became prevalent. But it would be a big mistake to give a total bailout to the MTA without also factoring in that they've lost hundreds of millions of dollars for not enforcing turnstile jumpers.

Or for in the past allowing 97% of its railroad retirees to collect disability pensions.

Or for allowing railroad conductors to get double pay for working on both an electric and diesel train on the same day.

Or for allowing employees to get overtime for washing their hands or changing their clothes.

Maybe it's time to force the MTA and other poorly run governmental entities to file for bankruptcy so that needed reforms can be mandated upon them.

These are the same type of reforms often mandated by courts when municipalities declare bankruptcy. Pensioners in Detroit's general retirement system took a 4.5 percent cut to their monthly pension check, no longer receive cost-of-living adjustments, and saw a reduction in medical benefits.

So, McConnell's suggestion of municipal bankruptcy is not at all crazy. Taxpayer exposure becomes limited, pensioners keep their nest eggs (perhaps with a slight trim) while mandated reforms provide structural adjustments that control the otherwise skyrocketing projections of growth within these entities.

On the other hand, federal assistance for lost revenues and direct coronavirus expenditures should be direct grants to help keep the states above water.

Medicaid is a more complicated situation. Certainly, the economic dislocation caused by the virus has led to a spike in Medicaid costs for states. This should not be confused, however, with some of the Medicaid debt that existed prior to the onset of the virus.

Take New York, for instance. It was already facing a $6 billion budget deficit, in large part due to its irresponsible handling of its Medicaid budget. Gov. Andrew Cuomo's fiscal sleight-of-hand had purposely deferred 2018 payments into 2019 to make it appear that the prior budget was lower than it appeared.

The state also has such a liberal Medicaid eligibility policy that it's Medicaid budget is twice as large as Texas', which has 50% more people. Why should the federal government bail out any state for that pre-existing fiscal irresponsibility?

It would be ill-advised for those on the right to suggest that no financial assistance should be available to help states in these trying times. On the other hand, the left should not expect that future generations should have to foot the bill for the wasteful practices that were already in place by states, long before anyone ever heard of the term coronavirus.

Steve Levy, former New York state assemblyman, Suffolk County executive, and candidate for governor, is now a distinguished political pundit. Levy's commentary has been published in such media outlets as Washington Times, Washington Examiner, New York Post, Albany Times, Long Island Business News, and City & State Magazine. He hosted "The Steve Levy Radio Show" on Long Island News Radio, and is a frequent guest on high profile television and radio outlets. Few on the political scene possess Levy's diverse background. He's been both a legislator and executive, and served on both the state and local levels — as both a Democrat and Republican. Levy published "Bias in the Media," an analysis of his own experience, after switching parties, with the media's leftward slant. Levy is currently Executive Director of the Center for Cost Effective Government, a fiscally conservative think tank. He is also President of Common Sense Strategies, a political consulting firm. To learn more about his past work and upcoming appearances, visit www.stevelevy.info. Read Steve Levy's Reports — More Here.

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Sen. Mitch McConnell created quite a firestorm by suggesting that some states consider declaring bankruptcy, rather than seeking federal assistance to deal with their cavernous Coronavirus budget holes.
mitch mcconnell, bankruptcy
Friday, 24 April 2020 01:33 PM
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