McConnell’s Hometown Will Be Hit Hard Without Federal Bailout

(Bloomberg) -- When Senate Majority Leader Mitch McConnell panned the idea of providing federal aid for states and cities this week, it was widely seen as a dig at the lax fiscal policies of the Democrat-led coastal metropolises that have been the hardest hit by the coronavirus pandemic.

The truth is, though, that at this point in the crisis, the finances of vast numbers of municipal governments, red and blue alike, are in dire straits all across the country. Including, it turns out, the two largest cities in McConnell’s home state of Kentucky.

Louisville, which McConnell calls home, and Lexington face massive budget deficits, with few options other than dipping into savings and cutting services and jobs, which will only add to the economic turmoil. Already, a fourth of Kentucky workers have lost their jobs in the last five weeks, according to U.S. Labor Department data.

While Congress approved $484 billion in coronavirus funds this week, budget relief for municipalities isn’t included. Instead, McConnell suggested during a radio interview that states could pursue bankruptcy as an alternative way to reduce fiscal strains. Democrats dismissed his call to “push the pause button,” and even some of his GOP colleagues are pressing for aid.

New York Governor Andrew Cuomo, a Democrat, said the national economy would “collapse” if states are allowed to go bankrupt. New York Representative Pete King, a Republican, called McConnell the “Marie Antoinette of the Senate” for his seeming indifference to the plight of America’s local governments -- including those in Kentucky.

Read more: GOP Senators Press on for Aid Over McConnell’s ‘Pause Button’ Call

“To me it’s pretty straightforward, and I just hope Washington would address this issue sooner, rather than later,” Louisville Mayor Greg Fischer, a Democrat, said in an interview. “Without the basic services being delivered in the city, we’re not going to have an economic recovery.”

The CARES Act created a $150 billion fund for states and large governments to cover public health-related costs they’re incurring to mitigate the outbreak of the virus. A spokesman for McConnell said that Kentucky is expected to receive at least $1.25 billion in relief from the stimulus package, including a large share for the Louisville metro area given its population.

But the Treasury Department said in guidance released this week that state and local governments cannot use the money to replace lost revenues.

“We’re not interested in revenue replacement for state governments,” McConnell said in an April 22 interview on Fox News.

A lobbying group for U.S. governors asked Congress to provide $500 billion in aid for states alone, with cities seeking additional funds. Kentucky Governor Andy Beshear and Louisville’s Fischer are among the leaders that have called for federal help.

Louisville has projected a $115 million budget shortfall over the next 14 months, and without federal aid, will have to cut a fifth of its workforce, according to Fischer. About half of Louisville’s budget comes from payroll taxes, making the budget especially sensitive to the job losses driven by the virus. The city would consider short-term borrowing for cash-flow needs, according to a spokesperson for Fischer, though that’s not a sustainable solution long-term.

About 78 miles (125 kilometers) away, Lexington is facing what Mayor Linda Gorton, a Republican, called an unprecedented $40 million drop in revenue for the coming fiscal year. Gorton plans to cut services, trim a planned bond offering for new police cars and road work, and tap into a $35 million rainy-day fund.

Beshear’s office didn’t provide an estimate of the tax revenue hit, but he said during a press conference that the closures will likely pose a problem during the current fiscal year.

Losing Issue

In the radio interview on Wednesday, McConnell said he wasn’t ready to send a “blank check” to governments. New York’s Cuomo criticized McConnell’s comments, saying that Kentucky -- unlike his state -- takes more federal money than it contributes. This fourth virus-related spending plans enacted since March have totaled almost $3 trillion.

“They want to fund small business, fund the airlines -- I understand that,” Cuomo said Thursday. “But state and local governments fund police and fire and teachers and schools. How do you not fund police and fire and teachers and schools in the midst of this crisis?”

GOP lawmakers may be reluctant to provide additional aid because it could be a “bailout” to state pensions, McConnell said in the radio interview on Wednesday. His home state had the third-worst funded pension in the nation in 2019, just behind New Jersey, according to data compiled by Bloomberg.

J.D. Chaney, who leads the Kentucky League of Cities, said he’s optimistic that McConnell, a former judge-executive who is facing re-election this year, will eventually come through for Kentucky.

“He’s a former local official himself,” Chaney said. “He knows how local governments operate, and he knows Kentucky better than anybody.”

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