Politics & Policy

Who Gets Bailed Out Next?

(Jonathan Ernst/Reuters)
Congress gets ready to pick some more lucky winners.

Like it or not, this is a time when borrowing money makes sense. We are facing a severe but temporary economic disaster, and we can smooth out the damage by having the federal government offset the losses of businesses, workers, and even lower levels of government (which don’t have the feds’ capacity to take on debt and usually can’t do so legally anyway). Especially with interest rates so low, it will be less painful to pay off the debt in future years than it would be to absorb the losses all at once.

But once the feeding trough is open, everyone lines up, and Congress has to choose who gets what. Here are three of the big questions that the Republican-led Senate faces as it considers adding another round of funding to the trillions of dollars we’ve already spent. Democrats in the House, you may have heard, have already picked their $3 trillions’ worth of winners.

1. How much money should the states get?

This is the big one. COVID-19 has torpedoed tax revenues and increased reliance on safety-net programs, wreaking havoc on state finances. “Rainy day” funds are running dry, and previous relief bills didn’t give much to states. It doesn’t help that so many states dug themselves into a hole long before the virus attacked by mismanaging their pension funds.

The tensions over whether and how to help states are entirely predictable. The states most desperately in need of aid are dense blue ones, which were hit hardest by the virus but also did the worst job managing their pensions. Even if you start with the assumption that a bailout of some kind is justified, there’s no great way to dole it out. Does it go to the states with the most financial need? The most COVID-19 deaths? Or what?

The answer will affect what coalition you can put together to pass a bill, and it will change whether the aid heads disproportionately to GOP or Democratic strongholds. Some ways of structuring this aid could also discourage states from reopening by promising federal aid to offset the damage of extended lockdowns.

Illustrating the difficulty of settling on a fair approach, the House Democrats’ bill divides the states’ money into numerous bins, each of which relies on a different formula, including giving the money out to all states and D.C. equally, in proportion to population, in proportion to documented COVID-19 cases, and in proportion to unemployment increases.

With many Republicans, including the president, expressing reticence to bail out blue states, with some blue states on the brink of fiscal disaster, and with plenty of red states not doing so great either, this will be cringe-inducing to watch.

2. What the heck do we do with the Postal Service?

Like the urban blue states, USPS faced a dire situation even before COVID-19 struck and then suffered a severe blow from the virus itself. It’s reporting a one-third decline in mail volume (though there are some questions about the exact revenue impact) and warning it could go broke before the end of the year without help.

USPS, which of course trafficks heavily in paper communications, saw a lot of revenue disappear with the arrival of the Internet — and this loss reverberated. For example, its retirement health benefits long worked on a ‘pay-as-you-go’ basis, meaning that former workers’ benefits were paid for out of current revenues. This doesn’t work when revenues are evaporating and retiree health costs are rising, so in 2006 Congress required it to quickly transition to pre-funding the benefits, which added to the strain. Meanwhile, the agency still suffers under laws that dictate what services it provides and how much it charges, and it seems to enjoy giving generous concessions to its unions.

My own take: We’re using a lot of federal money to help entities, public and private alike, that have been directly affected by the pandemic, and there’s no obvious reason that USPS should be shut out entirely. But, if we’re going to bail the agency out beyond just offsetting its COVID-19 losses, that needs to go hand-in-hand with deeper reforms. I’d just privatize it and be done with it, but more realistically, this will involve tweaks such as rate increases, service cuts, greater use of non-union contractors, etc.

3. What should the safety net look like while we reopen?

Earlier this year, Congress passed very generous unemployment benefits for people who are thrown out of work by COVID-19. Indeed, these benefits are sometimes higher than what recipients made while working. It’s one thing to do that when you want to discourage people from working, but it’s another to keep doing it while much of the country reopens.

The current provision doesn’t expire until the end of July, and there are numerous proposals to counteract its effects, extend it, or beef up other parts of the safety net. These include giving “hazard pay” to people who still go to work, capping benefits at previous wages, tying the unemployment boost to economic “triggers,” sending another round of checks to everyone, and hiking food stamps.

My guess is that congressional Republicans will resist further safety-net expansions until we see how reopening goes, while Democrats will stop any attempt to mess with the expanded unemployment benefits before they expire. But I’ve never claimed to be great at reading the political winds.

Whatever happens, none of this will be pretty.


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