McConnell’s bankruptcy plan is disaster for Maryland … and Kentucky

By now Senate Majority Leader Mitch McConnell’s (R-Ky.) half-baked idea to encourage states to declare bankruptcy so that the federal government is absolved of further responsibility has been widely and roundly condemned on a bipartisan basis. McConnell’s statements make clear that he has never been a state legislator tasked with balancing a budget— and any rhetoric he makes about our frontline workers is undermined by his embrace of state bankruptcy. He knows that the current welfare and future retirement of police, firefighters, health departments, and all those essential workers and service providers who have kept things going as we continue to navigate the pandemic rest in the hands of the state and local governments. In turn, the solvency of many of these governments depends on swift action by Congress.

Setting aside concerns about the legality or constitutionality of having a sovereign state declare bankruptcy, McConnell’s proposal reveals both his deep antagonism for voters and a failure to understand the dynamics of our national economy.

Allowing states to declare bankruptcy would be an assault on representative democracy. No longer would it be elected governors and legislators who determine state budgetary policies, but instead, unelected federal bankruptcy judges would decide what state budget priorities to cut and to what extent.

In Maryland, as in most states, legislators are required to pass a balanced budget. Maryland voters understand that when they send us to Annapolis we cannot rely on a central bank or government printing press, we are charged with making the hard choices about which programs to fund and which to cut. As Appropriations Committee Chair Maggie McIntosh remarks every year, our goal is to pass a budget that is socially responsible and fiscally prudent. It is unlikely that federal bankruptcy judges would feel—or act—the same.

States rely on a mix of taxes to fund government— and in our case income and sales taxes make up 85 percent of the funds we use for most services people care about such as education and public safety. The closures—essential for public health—are hitting hardest those sectors that generate such revenue. To date, our hospitality sector may have lost up to 90 percent in employee wages and more than 60 percent in revenues—and we are still not certain when this sector will reopen.

Should states declare bankruptcy, default on obligations, or begin draconian cuts to the basic services they provide, it would deepen and prolong the recession, increase unemployment, and reduce revenues needed to provide essential services as the economy is restored to a semblance of health. States are the critical organs of the national body politic—if the states are not maintained and restored to economic health, there will be no national economic recovery. Limiting federal support will deny funding for programs that are not only essential to the health and safety of Americans nationwide, but also critical to bolstering the chances for an economic rebound.

Although Maryland has a $1.2 billion rainy day fund—6 percent of its budget and far more than Kentucky maintains—it is only enough to fund our state’s needs for approximately one month. Given the current circumstances, we must ask Sen. McConnell what they suggest states cut: police departments, trash collection, health care, food assistance, education, road maintenance, or transit?

Maryland, through prudent spending and rigorous oversight, has maintained a AAA bond rating— a better credit rating than Kentucky—which permits us to borrow money at the most favorable rate. McConnell has declared that he does not want to saddle future generations with debt—but if a failure to support states during this crisis were to result in Maryland’s first bond default in over 100 years, the vastly-increased costs of borrowing would place a major debt burden squarely on the shoulders of future generations.

Absent adequate federal funding for state and local governments at this critical juncture, we will ensure a needlessly-prolonged and painful recession. At a time when the federal government can borrow money at nearly zero percent interest, it is reasonable and sensible for our national leaders to adequately stabilize states and localities.

Unlike McConnell, state and local governments – including Maryland – know how to balance budgets. The current state challenges are not a result of runaway spending or imprudent tax cuts for the wealthy. It is time for Congress to move swiftly and send critical funds to the governments that do the front-line work that keeps people safe, healthy and employed.

Brooke Lierman is a Maryland state delegate, representing Baltimore City (District 46). She served for five years on the Appropriations Committee before assuming a leadership position on the Environment & Transportation Committee in the Maryland House of Delegates.