Posted on 01/24/2011 8:45:07 AM PST by SeekAndFind
As states struggle with enormous deficits and exploding pension costs, some analysts are urging Congress to enact a law enabling states to declare bankruptcy the way municipalities can under Chapter 9 of the federal bankruptcy code. This is a bad idea. A state bankruptcy provision could create more problems than it solves.
Bankruptcy proponents understandably worry that states such as California and Illinois are so deep in the hole they may end up petitioning Congress for federal relief. To forestall this possibility, the argument goes, even the threat of bankruptcy would give governors and legislators a powerful new weapon for forcing concessions from recalcitrant public employee unions.
Yet state officials committed to cutting costs already have options for putting the squeeze on their unions. One is the threat of mass layoffs, which most governors can impose unilaterally. Governors and legislators also can prospectively freeze wages or even cut them through involuntary furloughs, as California and several other states did over the past two years.
True, management (i.e., taxpayers) often starts from a weak position in contract talks with government unions. But governors and legislators have the power to change that, too—because the bargaining rights of state and local government unions are primarily a matter of state law.
By reopening their collective bargaining statutes, state officials can narrow the terms of future negotiations—restricting compulsory arbitration, say, or taking retiree health insurance off the table and making it a management prerogative. They can also pressure unions by revoking privileges such as the employer-collected dues checkoff. They can even eliminate future union contracts.
This is not as unlikely as it may sound. At least 18 states already outlaw collective bargaining with some categories of government employees; Virginia and North Carolina prohibit it for all public workers.
(Excerpt) Read more at online.wsj.com ...
Anyone drawing a paycheck from the Public treasury should be forbidden by law from unionizing.
Yep.
But the State politicians would rather dump their problems on a bankruptcy trustee and force him to make all the tough decisions and take all the political heat for them. Then they can tell their voters and supporters that they had no choice but to file and were totally against all those mean decisions the bankruptcy court made.
"You'd better bail out the states if necessary. It will be The End Of The World As We Know It if some munis go down. You remember what side your bread is buttered on, right??"
Ping for later...
They make the declaration that instead of cutting excess teachers, state maintenance workers or cutting their 6 figure salaries, they threaten to cut Police, crime fighting and fire fighters instead.
The stupid publik sure “wakes up” fast don't they?
Bankruptcy is the only way to deal with union contracts and union pensions.
Some of us don’t enjoy the luxury of a cushy state job with cushy state union perks. I guess we’re just here to make sure that those who do never have to want for anything. If my boss can’t make payroll, guess what? He’s out of business and so am I. What makes these jackoffs so special? Oh, I know, they voted for Barack Obama.
Amen to that.
I agree...the labor and pension contracts have to be abrogated, and that’s the only way it can be done..The problem with state bankruptcy, as I see it, is that the same clowns...(libs, Dems) who caused the problem will be left in charge of fixing it..You can’t void an election..In a civil bankruptcy filing..if the creditors won’t accept the reorganization plan, and/or can’t be satisfied, then they can force the company into involuntary bankruptcy, and dissolution..that’s the BIG CLUB that keeps everyone honest in those negotiations..you won’t have it in a state filing..
Only if the Federal Courts get involved does allowing state bankruptcies make sense. If the Federal Courts cannot order the state legislators or governor to pay claims, let the states figure it out on their own. Letting the pols of the hook is a bad idea.
I’ve posted this on other threads today so I apologize up-front if you’ve already seen it. Still here it comes.
I’ve thought about this for a bit. And I have come to the conclusion that I think that it would be a good thing if a state of the United States were permitted to claim bankruptcy.
With that being said I do have a few conditions of my own.
1. The State wishing to declare bankruptcy would have to relinquish it’s standing as a ‘state’. It would assume the status of a territory of the United States.
2. It would lose the right to elect Senators and Congressmen to the Federal Congress while under Territory Status.
3. Although the Territory that was formerly a state could elect State Senators and State representatives to their “Territory House” Formerly known as the State Senate and State House of Representatives. They would not be able to elect a Governor. The territory Governor would be appointed from Washington D.C with the Full Congress and Senate passing approval by 66% of the voting members.
4. The Territory would not lose Territory status and Regain Statehood until the Following minimal requirements are met:
A. Territory status will be for a period of not less than 10 years.
B. A Territory must have a positive balance in their ‘books’ for at least two years consecutively.
C. No City or County within the Territory may be or have been in bankruptcy Status for at least 4 years prior to the Act of Reinstatement of Statehood being granted.
D. All Debts and obligations incurred by the former State that brought about the State Bankruptcy must be discharged for a period of 4 years prior to the Act of Reinstatement of Statehood being granted.
If you think about it, these conditions are very reasonable. Bankruptcy should have consequences and losing political power and a place at the Federal Hog Trough should be among them.
Who cares if the Bond Markets get rattled?
Just like with mortgages in 2007, the muni/state bond risk has been covered up by accomodative, short-term gov’t policies. The risk is there, and it will come out sooner or later.
State Gov’ts AND the bond markets need to be rattled.
‘Who cares if the Bond Markets get rattled?’
Exactly, the Federal Gov needs to get out of the business of making people who make bad investments ‘whole’.
A contract is only a valid contract when all parties to the contract are willing and able to perform the terms of the contract.
In Illinois, at each promise to spend money in the future it was accurately pointed out by many that the state government would be unable to fulfill the terms of the promise and therefore was not competent to enter into such a contract and therefore there was no contract ... only wishful thinking. Some labor union spokespeople seemed to agree that infact the promises were not contracts because those labor union spokespeople said that they would have to continuously apply pressure on the politicians to keep their promises.
The article was on the Op Ed page, not a WSJ driven article
State bankruptcy doesn't exist yet - Article 9 of the bankruptcy code does allow municipalities to file.
To allow states to file (many legal issues to overcome) would hopefully only be used as leverage to renegotiate contracts with the unions, etc. One of the stronger aspects of bankruptcy laws generally is to disavow contracts you don't like in some circumstances - powerful motivation for the other party to renegotiate.
Federal courts have exclusive jurisdiction over bankruptcy actions (Constitution). Bankruptcy Judges are tough, but do not enjoy lifetime tenure like other Federal Judges - a constant issue of conflict. They can be political (although are generally a very strong group of judges) and they have tremendous discretionary authority. But, this should not be the answer either. (I think we allow the Judiciary to do too much now - because the legislation avoids the tough decisions - leave it all up to the activist judges.)
The author doesn't really address the alternative directly.
At the end of it all, I think that the municipality that simply stops paying the retirees benefits, and/ or perhaps basic services will drive the legal issue. Camden NJ just fired 400 critical employees - 200 police and fire personnel - because the union wouldn't renegotiate their contracts - that will be the fact pattern. So the town or city gets sued and lose. A Court then orders them to pay. If they have no money, how to enforce? I think facts like these will drive the discussion, not the bankruptcy angle.
And yes, we do care if the bond market gets roiled. All our cities, towns and local governments borrow to provide basic infrastructure growth - roads, schools, new firehouses, libraries etc. (not operating expenses, usually). If this continues, the cost to borrow - if you can borrow at all, will get appreciably higher. That will be passed through through higher real estate and sales taxes. No other choice.
The public union benefits, people getting pensions - as well as medicaid, will, by necessity, be vastly different in 10 years... and not better. Its going to be an ugly ride.
Well said.
Bankruptcy should be an absolute last resort.
I do not believe any person would want to put their future in the hands of a bankruptcy judge.
The tax-paying voters (both liberal and conservative) need to put pressure on their politicians to make the decisions that cut costs.
The tax-paying voters still represent the majority in the near term.
If they laid off every current worker they just might be able to pay the pension and benefits for the retired workers. Teachers in my town can retire at 52 (it's going down to 50) so they can work ~30 years and then live off their pension for 30 years. It's insane.
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