Trump's state 'bailout' swipe prompts pushback: Who's really getting rescued?

“New York state has been bailing them out every year for decades,” Gov. Andrew Cuomo said of red states.

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By Sahil Kapur and Allan Smith

WASHINGTON — President Donald Trump is expressing skepticism of federal relief for “Democrat-run” states battling the coronavirus. Senate Republican Leader Mitch McConnell’s office bashes the idea as “blue state bailouts,” and has proposed to let cash-strapped states declare bankruptcy.

The remarks have returned attention to a larger debate about which states are the most dependent on the federal government — with some blue-state voices pointing out that they perennially do more to subsidize red states than vice versa.

Three of the four biggest “taker” states lean Republican: Kentucky, Mississippi and West Virginia, according to a 2019 study by the SUNY Rockefeller Institute of Government that looked at how much states get from the federal government per year and how much they send to Washington. New Mexico was the exception. All four receive twice as much money as they give.

The four biggest “giver” states, according to the study, all lean Democratic: Connecticut, Massachusetts, New Jersey and New York

Illinois, which the president mentioned, is one of 10 states that give more money to the federal government than they receive.

The findings complicate the narrative from Trump and McConnell, who is from Kentucky, about Americans in Republican-leaning states being forced to rescue their more liberal counterparts. Those same red states rely on New Yorkers and New Jerseyans each year, and those money streams could be disrupted if the hard-hit states are forced to go bankrupt.

The clash over “bailouts” comes ahead of a brewing debate in Congress over the next phase of coronavirus relief, which Democrats say must include aid for state and local governments, which was excluded from the most recent package. McConnell has said it will require a full vote of the Senate, unlike previous measures that cleared the chamber by a voice vote.

He also poured cold water on the idea of federal relief for coronavirus-stricken states.

"I would certainly be in favor of allowing states to use the bankruptcy route," McConnell told conservative radio host Hugh Hewitt last Wednesday. "It saves some cities. And there’s no good reason for it not to be available. My guess is their first choice would be for the federal government to borrow money from future generations to send it down to them now so they don’t have to do that. That’s not something I’m going to be in favor of."

In two separate press releases, McConnell’s office dismissed the calls for relief as “blue state bailouts,” drawing aggressive pushback from New York Gov. Andrew Cuomo, a Democrat, at his next daily briefing. Cuomo teed off on the idea again Monday when asked about Trump’s tweet.

Cuomo said it wasn’t time for an accounting of who takes more money from the federal government versus who puts more into the pot — but cautioned that if that conversation were to take place, red states would lose the argument.

“New York State has been bailing them out every year for decades,” Cuomo said at his daily coronavirus briefing. “If you want to do an analysis of who is a giver and who is a taker, we are the No. 1 giver. ... We’re the No. 1 donor state. And if you want to look at — who are the donor states? They are the same states they’re talking about now. Who are the taker states? Kentucky, [the] southeast part of the country."

"We’re one nation. We put into the pot what we need, you take what you need … but if you want to call for an accounting, you’re making a mistake, because you lose," he said. “And you happen to be 180 degrees wrong in what you’re saying.”

The debate comes as states and local governments are asking for hundreds of billions in relief funding to offset budget shortfalls exacerbated by the COVID-19 crisis, which has dried up revenue sources as states impose stay-at-home orders to contain the virus.

A Congressional Research Service report this month on initial coronavirus aid said "early evidence suggested that the COVID-19 economic shock would have a notable impact on state and local budgets," pointing to the "sizable share of economic output" that derives from state and local governments.

But after passing a bill to replenish the small business aid program last week, McConnell said he wasn’t in favor of bailing out states he accused of mismanaging funds. In the days since, some have echoed his rhetoric while others have pointed to the need for relief. Governors, meanwhile, condemned his remarks as “outrageous” and “irresponsible” on the Sunday political talk shows.

Other GOP senators agreed. "We sit here and live within our means, and then New York, Illinois and California and other states don’t, and we’re supposed to go bail them out. That’s not right," Sen. Rick Scott, R-Fla., told reporters Monday.

Democrats pushed back. “If Florida would like to have a conversation about making sure no state gets more money from the federal government than they send to it, Connecticut is ready,” Sen. Chris Murphy, D-Conn., tweeted later Monday morning.

Connecticut is one of the biggest net donor states, while Florida receives substantially more from the federal government than it sends, according to the SUNY study.

Experts have said that without providing relief to state and local governments, the economic downturn could worsen and turn into depression. States like Florida, where there is no state income tax, could be hit harder as sales tax revenue dwindles. State and local governments will be forced to make significant cuts to jobs and other services without aid, meaning reductions to police departments and schools.

“I think this kind of short-sighted thinking risks spooking the municipal bond market and undermining any economic recovery,” said Linda Bilmes, a professor at the Harvard Kennedy School and a leading expert on public budgetary and financing issues.

NBC News has reached out to all 22 GOP governors from states Trump won in 2016 to see what they thought of McConnell's office framing the relief as “blue state bailouts.”

Only Missouri Gov. Mike Parson's office replied, pointing to remarks he made disagreeing with McConnell’s bankruptcy suggestion but saying states "should be responsible" for how they manage their finances and should not be getting bailed out.

Julie Tsirkin contributed.