Moneybox

Republicans Are Absolutely Deluded if They Think Only Blue States Need a Bailout

The economic crisis is coming for GOP strongholds, too.

President Donald Trump speaks in the East Room of the White House.
He’s got nothing.
Mandel Ngam/Getty Images

With the coronavirus crisis threatening to choke state budgets and force massive, economically damaging spending cuts, Republicans have responded in their time-honored fashion, by telling New York and the rest of blue America to politely drop dead.

Senate Majority Leader Mitch McConnell set the tone last week when he said that any aid to state governments would amount to a “blue state bailout.” He suggested that instead of handing governors money, which would supposedly allow them to paper over years of financial mismanagement, Congress should just let states declare bankruptcy. On Tuesday, meanwhile, Donald Trump signaled that he might be willing to discuss aid with Democrats in Congress, but only if states bend the knee on immigration policy.

“The problem with the states is that we’re not looking to recover 25 years of bad management, and to give them the money that they lost. That’s unfair to other states,” Trump said. “Now if it’s COVID-related, I guess we can talk about it. But we’d want certain things also, including sanctuary city adjustments, because we have so many people in sanctuary cities.”

What’s a bit odd about all of this is that GOP leaders are acting as if they have an upper hand on this issue, because only Democratic strongholds like New York and Illinois are in trouble. In fact, nothing could be further from the truth. Red states are also fiscally screwed thanks to the coronavirus, and in many cases may be in worse shape than supposedly irresponsible blue states.

It’s unclear why, exactly, some Republicans appear convinced that only political entities that happen to be run by Democrats are about to experience a financial rout. Perhaps it’s because the biggest coronavirus hot spots have tended to be in places like New York, New Jersey, and Michigan. But economic activity has frozen all over the country as governors try to slow the pandemic, and even if Georgia or Texas attempt to “reopen” a bit early, that won’t save them from the shockwaves of a deep national recession. Some Republicans, like McConnell, have seemingly suggested that states like Illinois are in financial trouble now because of their long-standing public pension problems. Insofar as that makes any sense, it’s because some states with pension issues (Illinois, Pennsylvania) haven’t been able to build large rainy day funds or other reserves that would help tide them through this crisis. But that list of offenders also includes McConnell’s own home state of Kentucky, which has one of the worst-managed pensions in the country.

And here’s the thing: States that have put money in reserve are going to get bowled over, too. “Even well-prepared states are going to be totally outmatched by the size of the downturns we’re about to see,” Dan White, director of government consulting and fiscal policy research at Moody’s Analytics, told me.

Earlier this month, White and his colleagues published a forecast showing that, due to the coronavirus crisis, the vast majority of states are likely to face serious budget shortfalls over the next year that will more than devour their entire rainy day funds—and that some of the worst emergencies are likely to be in swing states and in deep Trump country. Sure, New York, New Jersey, and Illinois are in trouble. But so are Florida, South Carolina, Oklahoma, Missouri, Indiana, Arizona, Mississippi, West Virginia, and plenty of others, including, yes, Kentucky.

A map of the states facing budget shortfalls.
Moody’s

And worst off of all? That would be Louisiana, which as far as I can glean basically doesn’t have an economy anymore. (Take away oil, restaurants, and tourism, and the Big Easy is in big trouble.) It could be facing a budget hole equal to 34 percent of its 2019 revenues. “Without aid from the federal government, they could have to cut 30 or 40 percent of their budget,” White said. “That’s not just furloughing some people or laying people off. That’s changing the way you deliver basic services.”

State budget shortfalls due to coronavirus
Moody’s Analytics estimates budget shortfalls by estimates declines in tax revenues and increases in Medicaid spending, and subtracting them from state rainy day funds.
Adapted by Jordan Weissmann from Moody’s Analytics data

The fact that Louisiana is currently facing a dark pit of fiscal despair (presumably one filled with oil that nobody wants to buy) might have something to do with why one of its Republican senators, Bill Cassidy, has bucked his party and endorsed a bipartisan proposal to provide $500 billion in aid to states. But other Republicans sincerely seem to have no idea what’s in store for their constituents back home. Take Florida’s Rick Scott. “It’s not fair to the taxpayers of Florida,” he complained to reporters the other day. “We sit here, we live within our means, and then New York, Illinois, California, and other states don’t. And we’re supposed to go bail them out? That’s not right.” Back in reality, his state is facing an almost 20 percent budget shortfall, the fifth worst in the country. California, on the other hand, is among the best prepared, because—contra its reputation as a fiscal basket case—the state spent years fixing its budget and building up a rainy day fund. It’s looking at a 3.4 percent shortfall.1

These projections could also be understating the severity of what states are now facing. Many aren’t actually allowed to draw down their entire rainy day funds in one year, and the recession could also be longer and more severe than the baseline scenario Moody’s estimates. If joblessness peaks at 17 percent and lockdowns last past the second quarter, even states like Texas could start to run through their reserves and face shortfalls.

But don’t let those details obscure the simple bottom line: Few if any states are going to be spared in this economic crisis. Everybody is going to need some aid. It’s possible that Republicans like McConnell do actually understand this, and that they’ve just been posturing for the past week to set themselves up for negotiations, as my colleague Jim Newell wrote last week. But if so, everyone should realize that, for all the bluster, the GOP is in a very weak bargaining position here. Unless Republicans are willing to leave their own states gasping for help, they can’t credibly threaten to withhold it from Illinois or New York.

Would they do that? I doubt it. This isn’t 2011, when Republicans used austerity to undercut a sitting Democratic president. Trump is fighting to keep the White House. McConnell wants to keep the Senate. If the country enters a depression, and states and cities have to lay off thousands of teachers and firefighters, voters are going to blame the party in power.

All of which means that if McConnell and Trump keep yammering about bankruptcy and sanctuary cities, Nancy Pelosi and Chuck Schumer should offer their own simple response: Drop dead.

1 White told me that some states, like Florida, could be in somewhat better shape than these figures let on, if they have some extra reserves left over outside their rainy day funds, but it wouldn’t fundamentally change much.