Should Municipalities Declare Bankruptcy?
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The Coronavirus attacked our health and put the global economy on life support. U.S. Senate Majority Leader Mitch McConnell responded requests for more state funding by saying, “Maybe states should declare bankruptcy?” To which New York Governor Andrew Cuomo said, “That is a dumb idea.” I agree with Governor Cuomo. States and municipalities ought to be funded properly so that they can embark on a bigger, bolder agenda to build back better than ever before.
The CARES Act provided the Federal Reserve Bank with the authority to print as much money as it sees fit to restore the economy. Congress yielded their fiscal policy powers to the Fed so that they do not have to vote repeatedly on measures as well as make lending more flexible. The downside is that this approach is less transparent as the Fed does not have to disclose important components of its lending activities.
The Big “Philosophical” Fight is whether governments should turn to the private sector for capital. This creates privatization pressures that ought to be mitigated. Complete privatization of public assets historically never ends well. For example, prices for parking in Chicago or in Westchester skyrocketed after meters were exclusively turned over to private interests. Recently, it was reported in the New York Times that projects to build more efficient ventilators were scrapped once monopolistic views took command.
There must be an equitable balance for a public, private partnership to take place. Rolling over and allowing another group to determine the destiny of local government is flat out wrong. Governments must not settle for crumbs when they already control the whole economic pie. Selling out for short term photo ops is a setup for long term community failure.
This leads to the question of what should municipalities do?
Municipalities must remember that they can turn these fiscal problems on their head by “partnering” with private sector. They should not take the bankruptcy bait nor should they “sell out” at low prices on our local assets without retaining control. They should hold banks accountable and make them invest into the community, especially small businesses. Remember, banks have access to an endless supply of money from the Fed, so recapitalizing and investing in public works projects should not require the transfer of ownership of public goods.
The next video will dive deeper and apply the above thinking to actual local government and state financial situations. We will also talk with some business owners about their experience in applying for SBA loans. We will learn whether they got the financing that is available or not. We will explore ideas on how to overcome the obstacles and ultimately win the Big Fight!
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