Are you ready for your state to declare bankruptcy?

The American Thinker Blog ^ | January 22, 2011 | Rick Moran

[Scanian]

The constitutional hurdles are very high, says this New York Times piece. And the topic is so sensitive that no one will dare put it in writing on the Hill. But it may very well come down to bailing out some states with federal money or allowing them to declare some kind of bankruptcy:

"Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.

"Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.

"But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government's aid.

"Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides."

And, of course, public unions are gearing up for a battle to save their gold plated pensions:

"'They are readying a massive assault on us,' said Charles M. Loveless, legislative director of the American Federation of State, County and Municipal Employees. 'We're taking this very seriously.' Mr. Loveless said he was meeting with potential allies on Capitol Hill, making the point that certain states might indeed have financial problems, but public employees and their benefits were not the cause. The Center on Budget and Policy Priorities released a report on Thursday warning against a tendency to confuse the states' immediate budget gaps with their long-term structural deficits.

'States have adequate tools and means to meet their obligations,' the report stated."

Could it happen? Bankruptcy remains a longshot given what it might do to the municipal bond market. More likely is some kind of federal bailout with strings attached. Nothing will happen until next year (fiscal year) when a lot of these temporary tax increases and spending cuts passed by the states expire.

[tbw2]

Debtors only gain from bankruptcy what lenders lose. This will crush the market for state bonds. Municipal bonds may not fair as bad, since cities can still owe their debts even if a state goes under.

My concern is the "federal bail out with strings", since it will likely be conditioned on the end of federalism. Federal money upon unilateral acceptance of federal power.

[Chode]

yup... they extorted their contracts through threats of strike and and walkouts and now they should have to live with the consequences of their ill gotten gains!!!

[SaraJohnson]

Unions did not have to “extort” anything from the socialists who run the States. The socialists got power by offering up the earnings of future generations to Union bosses.

Buying campaign contributions and votes with the public treasury is what election officials do now. No need to strike or bust Unions anymore. No one is looking out for the interests of the pulic nor looking to create and secure and prosperous future.

[Chode]

don't know where you're from, but, this is a republican county and has been since before i was born, and every union contract is fought tooth and nail...

[SaraJohnson]

Well, given the State governments being dicussed in this article gave away the store to Unions, there was not really much fighting going on in those states. I have lived all over the US. I have seen Rinos and Democrats totally owned by the pulic Unions. Any real “struggle” in Union dominated States is purely for public consumption.