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* You’ve probably seen this headline today…
Senate Majority Leader Mitch McConnell said Wednesday he favors allowing states struggling with high public employee pension costs amid the burdens of the pandemic response to declare bankruptcy rather than giving them a federal bailout.
“I would certainly be in favor of allowing states to use the bankruptcy route,” he said Wednesday in a response to a question on the syndicated Hugh Hewitt radio show. “It’s saved some cities, and there’s no good reason for it not to be available.”
Getting that through the Senate would be quite difficult, to say the least. Financial institutions which hold untold billions in public debt have a lot of clout in DC, and I can’t see them jumping up and down with glee at the possibility of those portfolios collapsing.
But getting that radical idea through the House would be next to impossible. McConnell is very good at public negotiating ploys. The media eats it up every time. But everyone needs to take a breath, even if President Trump chimes in.
* Again, the media loves to highlight conflict…
His statements set up a conflict with House Speaker Nancy Pelosi, who said on Bloomberg Television Wednesday a “major package” of aid for state and local government will be in the next stimulus legislation considered by Congress.
McConnell may also find himself in conflict with President Donald Trump. The president said Tuesday after meeting with New York Governor Andrew Cuomo that states will need assistance. “And I think most Republicans agree too, and Democrats,” Trump said. “And that’s part of phase four.”
* But while McConnell did throw a lot of cold water on a state bailout package, saying he wanted to hit the pause button, he didn’t completely rule out all state aid today. Let’s go back to McConnell’s remarks…
“You raised yourself the important issue of what states have done, many of them have done it to themselves with their pension programs. There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations,” McConnell said, after Hewitt floated Illinois, California and Connecticut as examples of states that have overly generous benefits for public employees.
“We’ll certainly insist that anything we’d borrow to send down to the states is not spent on solving problems that they created for themselves over the years with their pension program,” McConnell added.
To my eyes, that last bit looks like the real McConnell demand: No federal money for state pension funds. The Harmon letter did not help.
*** UPDATE *** From the governor’s office…
The Governor is working with our delegation and partners in Washington D.C. to ensure the state has the resources it needs to continue this fight against COVID-19. As the nation grapples with the impacts of this virus, every state is facing budget shortfalls and we need partners in Congress who will work with us on real solutions, instead of using this crisis to propose an ideological hail mary. The State of Illinois prioritizes its debt payments and is working to ensure we remain on firm fiscal footing through this crisis and we are working with partners who believe a federal response is needed to address unique challenges of this time.
posted by Rich Miller
Wednesday, Apr 22, 20 @ 1:39 pm
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The no pension provision is 100% fair. The problem is, we have a 100% pension issue depending how bad and long this affects our economy. I hope that it never comes to nixing the pensions. But, depending on circumstances, as they change daily, who can say for sure? But great point to calm us all! Thanks Rich!
Comment by CCM Wednesday, Apr 22, 20 @ 1:45 pm
Maybe Lightford is the Democrat Senate leader in 2021 after Harmon’s unforced error.
Comment by Pawar Lost Wednesday, Apr 22, 20 @ 1:45 pm
Thank you for this Post.
Thank you.
“Doing the doable“ is the phrase that pays.
The rest… is show business.
Comment by Oswego Willy Wednesday, Apr 22, 20 @ 1:47 pm
Can it even be done (making it possible for states to declare bankruptcy)? I would have thought that it would require a change to the US Constitution, not just legislation. Anyone there who actually knows? (RNUG, where are you?)
Comment by UIC Guy Wednesday, Apr 22, 20 @ 1:47 pm
McConnell may be on a fishing trip, but the scary thing, I hate to admit, is illinois is gotta figure this out. Tier 2. Good start. Progressive tax. Not gonna fix it.
Comment by Blue Dog Dem Wednesday, Apr 22, 20 @ 1:50 pm
===Getting that through the Senate would be quite difficult, to say the least. …. But getting that radical idea through the House would be next to impossible.===
First, Rich, thank you for this post. I hope you’re right. But if they try it, it’ll be through the courts, not legislatively. This and similar policy initiatives is the real agenda behind stacking the federal bench with conservatives.
Newsflash to pro-lifers: overturning Roe has nothing to do with it. But Mitch and the Koches appreciate your votes, suckers.
Comment by Nick Name Wednesday, Apr 22, 20 @ 1:52 pm
Send it to the states but Earmark it only for municipalities of all sizes, help fill the financial hole caused by lost sales tax….Skip Springfield or they will find a way to redirect it.
Comment by Donnie Elgin Wednesday, Apr 22, 20 @ 1:56 pm
As cities who have declared bankruptcy have found out, you can’t just apply bankruptcy to pensions. It applies to everything you do. There are very few who would find the benefit (lower taxes) would outweigh the costs (reduced services, bond defaults, pension reductions, etc.). I find it hard to see there ever being wide-spread support for it.
Comment by Pelonski Wednesday, Apr 22, 20 @ 1:59 pm
From a different Capfax blog post today:
== the Fiscal Year 2020 budget appropriated $4.8 billion to TRS. And $4 billion has vanished for now (due to stock market losses). ==
Of course, most of the pension damage in Illinois has been self-inflicted over multiple decades. But COVID has inflicted new damage.
And from yet another Capfax blog post today:
== y’all might want to check the US Constitution’s contract clause. ==
That was advice for the rent control crowd, but it applies to Mitch, too. He needs to amend the U.S. Constitution if he wants to let states claim bankruptcy. Good luck with that.
Comment by Roman Wednesday, Apr 22, 20 @ 2:01 pm
“That Harmon letter did not help.”
Meh, I really can’t blame the guy for trying. As the feds print trillions (with a T, trillions) of dollars and stuff it into personal bank accounts, small businesses, big businesses, farmers, QE etc, I can see why state-level politicians are asking for a little cheddar.
Comment by Ducky LaMoore Wednesday, Apr 22, 20 @ 2:02 pm
UIC Guy-
Cliff notes version:
1)There would have to be a change to Federal bankruptcy law
2)There would need to be a change to State law
3)The USSC would have to rule on the application of the USC Contracts clause which does not allow states to void their financial obligations
4)If all these are met the state would actually have to apply for Chapter 9 in federal court
5) A federal judge would review the case and decide if the state cannot meet it’s obligations, including it’s ability to raise new revenue through new taxation and selling of assets.
6) The judge would divide the obligations and decide who would get a haircut and how much. It should be noted in past municipal filings retirees actually came out the least affected. Bond holders and vendors who were owed were hammered.
Comment by Han's Solo Cup Wednesday, Apr 22, 20 @ 2:02 pm
McConnell is just deflecting. If Kentucky trips on its pension debt (which is almost as bad as Illinois), his chances of winning reelection will certainly go down. Look for another day or two of this rhetoric and then the state bailout, including pensions, will be off and running.
Comment by Harvest Wednesday, Apr 22, 20 @ 2:02 pm
When Florida is forced to go to the feds, hat in hand, looking for a state bailout due to the collapse of its tourism industry - that’s when GOP Senators will have to take up round 4 of federal COVID-19 assistance.
Comment by cover Wednesday, Apr 22, 20 @ 2:08 pm
The Harmon letter tactic reaked a little too much of a Mickelson-esque FIGJAM moment
Comment by Ok Wednesday, Apr 22, 20 @ 2:08 pm
Hey, Mitch why not cut the “overly generous” pension for Congress, along with your ridiculous healthcare of $$$
Comment by The Truth Wednesday, Apr 22, 20 @ 2:11 pm
=== Mickelson-esque FIGJAM===
Ok, I laughed. Yikes, that’s good.
When the governor spoke …
=== I don’t think there’s anything that can be more effective than a governor calling…===
… we’ll see what Mr. Harmon learned.
He’s not helping, that’s obvious.
Comment by Oswego Willy Wednesday, Apr 22, 20 @ 2:14 pm
If the Feds don’t assist states, local governments would likely be the ones looking at default because the state would likely cut their portions of tax revenue sharing. And the Repubs in DC, certainly will be challenged to provide direct aid to large, Democrat controlled, cities.
Comment by Riggins Wednesday, Apr 22, 20 @ 2:17 pm
===Democrat controlled, cities.===
Voters elected Democrats.
Republicans don’t even field a “candidate” in the non-partisan Chicago Mayoral.
If you’re gonna mouth breathe realize this… places like GA, you think in a special election the Trumpkin GOP senator is going to vote to hurt Atlanta?
Less talk radio, more practical politics.
Comment by Oswego Willy Wednesday, Apr 22, 20 @ 2:21 pm
You have to have a law passed by the state legislature in order to allow local government entities to file for bankruptcy.
Comment by WorkTren Wednesday, Apr 22, 20 @ 2:23 pm
The Harmon request might not have been appropriate, but I won’t drag out pearls and fainting couch about wanting to bail out pensions. Sorry about having to keep saying it, but Republicans are giving billions of free tax dollars to those who have seen record or very high profits/revenue. Trump hurt farmers but they took the free billions and didn’t blink an eye.
McConnell has no moral ground to stand on, seeing the spending and exploding federal deficits he’s instrumental in creating, as well as growing federal debt.
Comment by Grandson of Man Wednesday, Apr 22, 20 @ 2:24 pm
A more rational approach would be for independent auditors to review state budgets and make the best determination possible about how much state revenue was lost specifically due to the coronavirus thereby ensuring that bailouts are solely for lost tax revenues and unemployment claims, etc….
Comment by No Raise Wednesday, Apr 22, 20 @ 2:26 pm
I doubt Mitch McConnell has the votes in the Senate or support in the House to change federal bankruptcy law to allow Chapter 9 style bankruptcies for the states. But, even if he did: it’s highly questionable whether allowing the states to declare bankruptcy would be constitutional. States are sovereign entities : a federal law doesn’t change that.
Comment by Steve Wednesday, Apr 22, 20 @ 2:28 pm
Annoyed is annoyed that Mitch is cool with fed money paying airline employees 401k contributions until Oct 1 but teachers and first responders can suck it and take a pension cut.
Comment by Annoyed Wednesday, Apr 22, 20 @ 2:29 pm
Always curious about this idea. If you have a couple, both retired teachers, who receive zero social security, does this mean they would now have zero income? As in, seriously,nothing at all? So……social net stuff? SNAP,etc? Publicly subsidized housing?
Comment by Ano Wednesday, Apr 22, 20 @ 2:31 pm
It would be quite tasty for McConnell to decide to vote against helping Kentucky’s pensions while running with Trump… after Kentucky elected a Democratic Governor recently with, you guessed it, labor support.
This crisis is bigger than Mr. Harmon inserting himself needlessly or Sen. McConnell deciding re-election is the his own priority with Kentucky voters.
Calm down, indeed. This is a long game play.
Comment by Oswego Willy Wednesday, Apr 22, 20 @ 2:32 pm
===… instead of using this crisis to propose an ideological hail mary.===
And…
=== I don’t think there’s anything that can be more effective than a governor calling…===
Only one *legislator* decided to insert himself.
Comment by Oswego Willy Wednesday, Apr 22, 20 @ 2:34 pm
To me I see plenty of room for a deal reading the Trump and McConnell statements Rich quoted.
Helping the States through the impact of the virus, without trying to solve problems that existed before, seems pretty reasonable and fair. Sure you have to decide where the old problems end and the new one begins, but he doesn’t at all rule out helping the states.
Comment by AndyIllini Wednesday, Apr 22, 20 @ 2:34 pm
This state is now beyond broke. If we are going to amend the State constitution To allow for a graduated income tax then it is also time to amend the pension clause as well. We simply can’t afford 3 percent raises every year in a near zero interest rate environment. Then it is up to the legislature and the governor to work out changes.
Comment by Honor the Chief Wednesday, Apr 22, 20 @ 2:45 pm
You really think Illinois and other high dept pensions wouldn’t have been an issue without the Harmon letter? Illinois is one of many states that have a major problem. New Jersey and Kentucky come to mind. In fact the president of the New Jersey Senate sent his own letter. States need help on this issue given the massive financial hardships being caused by the pandemic.
https://www.nj.com/coronavirus/2020/04/feds-need-to-help-nj-public-worker-pension-system-survive-coronavirus-crisis-sweeney-says.html
Comment by Southern Skeptic Wednesday, Apr 22, 20 @ 2:48 pm
=== also time to amend the pension clause as well===
71. 36.
What is owed is owed.
If you don’t have 71 and 36 to put on the stairs, you have …nothing.
Comment by Oswego Willy Wednesday, Apr 22, 20 @ 2:49 pm
==This state is now beyond broke===
Before COVID, it was really not. The annual cost of the pensions is about $12B, and the investment returns should be about $7B. That means we need about 1% of the income tax to pay the pensions, or about $5B to stay afloat. That is not peanuts, but the sky was not falling. We just needed political will to collect enough taxes, and it is coming.
Comment by Jibba Wednesday, Apr 22, 20 @ 2:58 pm
Chief, if you can figure out a way around the federal contracts clause to go with your pipe dream of stealing, and yes it would be stealing, pensions from retirees, please let us all know. Thanks.
Comment by Fixer Wednesday, Apr 22, 20 @ 3:02 pm
Pritzker was just asked if he would consider state bankruptcy with lawmakers. He gave the obvious one-word answer.
Comment by Grandson of Man Wednesday, Apr 22, 20 @ 3:09 pm
The USA government is beyond broke and so is ever state. This scare tactic is another GOP talking point, another diversion to look beyond the incompetence of the Federal response.
Comment by Anon Wednesday, Apr 22, 20 @ 3:22 pm
== zero income ==
In a bankruptcy, creditors would get pennies on the dollar, not zero.
Comment by anon2 Wednesday, Apr 22, 20 @ 3:39 pm
Democrats should have never agreed to this latest business package without State relief. Now all of sudden Republicans are worried about the deficit after Trump’s Tax reform and all this recent Covit relief. Shame on the Democrats!
Comment by "Old Timer Dem" Wednesday, Apr 22, 20 @ 3:43 pm
=To allow for a graduated income tax then it is also time to amend the pension clause as well=
Sure. And what exactly is this pension amendment going to say or accomplish. You have a contractual obligation (might want to brush up on the US contracts clause while you’re at it). This trope is just as tired as it was pre COVID-19. The law is clear. The state has to pay what it owes. The only question is where that revenue is going to come from.
Talk of bankruptcy and actual bankruptcy are two different things. One does an effective drive of driving up bond yields. The other is just a pipe dream.
Comment by Pundent Wednesday, Apr 22, 20 @ 3:52 pm
- Nick Name - Wednesday, Apr 22, 20 @ 1:52 pm:
Thinking like that, you do not understand Pro-lifers. You can go ahead and laugh but you are not really laughing. We are not going away.
Comment by Evanston Wednesday, Apr 22, 20 @ 4:22 pm
Remember who controls the US Supreme Court now. If push comes to shove, state bankruptcy will be allowed and pensions will be toast. Elections have consequences.
Comment by up2now Wednesday, Apr 22, 20 @ 5:23 pm
== Remember who controls the US Supreme Court now ==
A group of Scalia-inspired strict constructionist, right?
If so, they will let Article 1, Section 10 of the Constitution speak for itself: “No State shall…pass any…Law impairing the Obligation of Contracts”
That clause has prevented states from walking away from contractually accrued debts. As Scalia might say, if you don’t like it, amend the constitution.
Comment by BC Wednesday, Apr 22, 20 @ 5:58 pm
==pensions will be toast.===
Illinois has assets of hundreds of billions of dollars, including real estate and infrastructure. Those assets would mostly go to the pension system and will be leased back to the state, who will have to raise taxes to rent it all back. And pensions will get paid.
Comment by JIbba Wednesday, Apr 22, 20 @ 6:40 pm
- Han’s Solo Cup - @ 2:02 pm gave a pretty good summary of the process. He should probably have noted it is not just State law, it would be the Pension Clause of the State Constitution that would need to be changed … and even then there would be a court fight over whether that could be applied retroactively in the case of bankruptcy. And if you didn’t get the State Constitution changed, that would set up a really interesting State’s Rights versus Federal Supremacy case.
Comment by RNUG Wednesday, Apr 22, 20 @ 7:52 pm
== then it is also time to amend the pension clause as well. We simply can’t afford 3 percent raises every year in a near zero interest rate environment. ==
Won’t matter. You can’t retroactively and unilaterally modify contracts. The 1970 Con-Con was crystal clear about the state pensions being a contract. And the courts have been absolute in ruling the Pension Clause is plain English and means exactly what it says in terms of the contract applying from date of hire.
You can change anything you want, within IRS and SS limited, for new hires. But you can’t involuntarily change terms for existing retirees or current employees.
Comment by RNUG Wednesday, Apr 22, 20 @ 8:02 pm
== If you don’t have 71 and 36 to put on the stairs, you have …nothing. ==
Even with 71 & 36 you will still have to pass something the courts will approve.
Given the language by the IL SC in both the Kanerva and SB-1 cases that said to the GA (to paraphrase): Nice try, but the court isn’t buying the Police Powers arguement. You have the resources to solve this if you have the political will.
Comment by rnug Wednesday, Apr 22, 20 @ 8:11 pm
- RNUG -
You’re on it.
Thanks for fixing my mess.
:)
Comment by Oswego Willy Wednesday, Apr 22, 20 @ 8:18 pm
==court isn’t buying the Police Powers argument==
And I believe they said this was a crisis of the state’s own making.
Comment by Ano Wednesday, Apr 22, 20 @ 8:33 pm
== And I believe they said this was a crisis of the state’s own making. ==
They did.
Comment by RNUG Thursday, Apr 23, 20 @ 12:00 am