Republicans, Democrats warn of coming financial calamity as Trump puts partisan spin on aid

Republican and Democratic governors are warning of financial calamity if Washington doesn't provide relief, some GOP lawmakers have joined with Democrats to call for a massive aid bill, and budget experts contend that leaving states to fend for themselves will only prolong the nation's recovery from the economic shock brought on by the pandemic.

Still, Trump has pushed the idea that a federal aid package would largely benefit fiscally irresponsible states run by Democrats. It's the latest attempt by the president to cast a partisan frame around a crisis that has ravaged much of the country with little regard for political affiliation.

"Why should the people and taxpayers of America be bailing out poorly run states (like Illinois, as example) and cities, in all cases Democrat run and managed, when most of the other states are not looking for bailout help?" Trump wrote Monday on Twitter. "I am open to discussing anything, but just asking?"

A bipartisan letter from the National Governors Association to congressional leaders made clear that the loss of revenue and financial hardship caused by coronavirus is happening in states of all political stripes.

"Congress must appropriate an additional $500 billion, specifically for states and territories, in direct federal aid that allows for replacement of lost revenue," Maryland Republican Gov. Larry Hogan and New York Democratic Gov. Andrew Cuomo wrote in the April 21 letter, which was signed on behalf of the nation's governors. "These continuing losses will force states and territories not only to make drastic cuts to the programs we depend on to provide economic security, educational opportunities, and public safety, but the national economic recovery will be dramatically hampered."

The letter followed a similar plea a month earlier from 20 Republican governors - including many Trump allies such as Govs. Brian Kemp State of Georgia, Kay Ivey State of Alabama and Henry McMaster State of South Carolina -- who asked Congress to boost federal funding for states dealing with an unprecedented crisis that threatened to inflict long-term damage on their fiscal health.

While Congress included more than $150 billion for states and local governments last month in a bipartisan coronavirus relief bill, the increasingly vocal requests for more funding have been met with more resistance from Republicans calling for fiscal restraint.

Some, including Trump, have cast the request as a bailout for fiscally irresponsible states that have long-running budget challenges.

"It's not fair to the taxpayers of Florida," Florida Sen. Rick Scott, a Republican, said Monday. "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."

Senate Majority Leader Mitch McConnell, R-Ky., drew bipartisan backlash last week when he said that states going through financial difficulty should be allowed to declare bankruptcy.

Hogan, who has said that his state is among several that could face a revenue shortfall without federal aid, panned the idea as "the last thing we need in the middle of an economic crisis."

But Trump's push to launch a partisan debate over whether states were poorly run or not has been embraced by several key Republicans - a development that could make it difficult for Congress to rally around another financial relief package. Democrats including House Speaker Nancy Pelosi, D-Calif., have said they would not back another bill unless it included significant funding for state and local governments. 

White House officials say Trump remains open to providing support for states, but is opposed to a federal rescue for any long-standing budget issues that state governments were struggling with before the pandemic.

"The federal government is not bailing out anyone," said White House spokesman Judd Deere. "As President Trump has said, we are going to continue to take bold, aggressive action to help those most impacted by this unforeseen enemy so that we emerge from this challenge stronger and with a prosperous and growing economy."

Some Republican governors have been reluctant to make a direct appeal for a federal bailout, even as budget officials within their states warn of a coming calamity. 

In Florida, close Trump ally Republican Gov. Ron DeSantis has said that his state may be able to weather much of the economic storm without having to redo its fiscal budget.

But the state's Chief Financial Officer Jimmy Patronis said Florida's crucial tourism sector, a key source of state revenue, had been hit hard and that current federal funding might not be sufficient, according to the Orlando Sentinel.

"This is a one-of-a-kind enemy we've never seen before," he said. 

Trump has vacillated on whether he wants to give states a lifeline or not. On Twitter last week, he said he looked forward to working on another federal packaged "with fiscal relief to State/Local Governments for lost revenue." But later in the week, he described the issue in partisan terms, saying that "the states that seem to have the problem happen to be Democrat."

Such comments have sparked a broader debate between Democrats and Republicans over how various states interact with the federal treasury. Some Democrats from states that contribute disproportionately large amounts of income tax revenue to the federal government have taken umbrage at Republicans who have linked the need for federal aid to fiscal irresponsibility at the state level.

"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 on Monday.

Republicans have focused on some Democratic aid requests that include support for fiscal challenges that predated the coronavirus crisis. Illinois Senate President Don Harmon asked Congress to provide his state with $41 billion in aid, including $10 billion to help stabilize an underfunded pension program. 

"There's not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations," McConnell told conservative radio host Hugh Hewitt last week. 

He relented somewhat Monday on his stance about overall state aid, telling a Fox News Radio's Guy Benson that "There probably will be another state and local funding bill, but we need to make sure that we achieve something that will go beyond simply sending out money."

The GOP focus on a few states with underlying fiscal issues is misplaced at a time when all states are suffering financial hardship, said Ray Scheppach, a former longtime executive director of the National Governors Association.

"If we don't bail out states, they're all going to cut spending and or raise taxes," he said. "That's going to make the downturn deeper and longer."

Scheppach said that while "you can point to any one particular state didn't do this or didn't do that" states had largely been in strong financial shape before the pandemic shuttered many of their businesses - leading to steep drops in revenue just as expenses for things like health care and unemployment insurance began to soar.

New Jersey Democratic Gov. Phil Murphy said his state could begin experiencing a cash crunch in a matter of weeks, describing the situation as a kind of "armageddon" that only the federal government could prevent.

"The alternative is not bankruptcy," Murphy said Monday on CNBC. "The alternative is we will gut the living daylights out of the very services that our folks now are desperately relying upon in what is the biggest health-care crisis in the history of our country." 

A bipartisan bill pushed by Sen. Robert Menendez, D-N.J., and Sen. Bill Cassidy, R-La., would provide up to $500 billion for state and local governments.

That is equivalent to the amount state governments will likely need to cover their shortfalls over the next two fiscal years due to the coronavirus, according to a research paper by the left-leaning Center for Budget and Policy Priorities.

Elizabeth McNichol, a senior fellow who co-authored the paper, said the shortfalls are a direct impact of the coronavirus, and not due to poor fiscal management by states.

"It's not a red state or a blue state effect" she said. "It is happening all across the country in states all across the country." 

Tony Fratto, who worked in the White House under President George W. Bush during the 2008 financial crisis, said he has tried to convince his Republican friends to "fix the problem today" and "have the ideological battles tomorrow."

He's also warned of the political ramifications of not acting to bail out states. 

"Republicans should think about this in political terms," he said. "The chances for Republicans to get reelected in November to a large degree are going to be correlated with the success of the economic recovery. And the economic recovery will not be very strong if all of the blue states are in economic peril."