Tuesday, February 08, 2011

When States Go Bust


It’s a solution of apparent Alexandrian elegance and simplicity: Empower America’s cash-strapped states to slice cleanly through a strangling knot of debilitating debt and government union cronyism by letting them file for bankruptcy. Long-term liabilities could be restructured, unaffordable labor contracts rewritten, fiscal health restored. No federal bailouts necessary.

Original article from November:

My comments: I still see constitutional issues with State bankruptcy.  However, the original article says you can avoid problems by making sure that only the State can decide to enter bankruptcy (no one can force a State into bankruptcy) and the State government must be allowed to continue to exercise their normal political control of the State (so, for example, the bankruptcy judge can't force them to raise taxes, and the Federal government could not appoint military governors as they did after the Civil War.)  So that's a weaker form of voluntary State bankruptcy, which may in fact be useful as a negotiating ploy.  In the end, I still think the State constitutions will get in the way of the State government reneging on debts and public employee pensions.  I wish it would work, but I don't think it will happen.

Posted via email from The Blue Pelican

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