States Need Bankruptcy Option

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When state governments — facing intractable budget problems — come to the Republican House asking for more bailout money, most GOP congressmen are determined to speak with one voice and say “no.” But where will the “no” leave the states and their citizens? Can they fix their fiscal woes by their own efforts?

They can raise taxes, of course, and set their states on a death spiral akin to that which has already destroyed Detroit and much of upstate New York. Or they can cut spending, slicing the heart out of vital services like education and police protection. Cuts of this magnitude will almost destroy the education of a large part of this generation of students.

There is a third way: to get to the root of the reasons for their dire crisis in the first place and abrogate their collective bargaining agreements with municipal unions that have brought them to this condition.

States cannot do so on their own. They need the federal government to adopt a bankruptcy procedure to allow them to do it. States are constitutionally bound to honor contracts, so it is only through a federal bankruptcy court that they can be released from the ill-considered and overly generous agreements that bind them.

In bankruptcy, municipal bondholders will — and must — be protected. But the bankruptcy court can offer states the option of renegotiating their union agreements to avoid raising taxes or eviscerating their schools. (States would not be forced into bankruptcy, but would enter it voluntarily, seeking the protection of Chapter 9.)

Even if the states had the legal means to get out of their union contracts without federal intervention, they could not do so politically. Union political power is too entrenched to be dislodged even by a determined governor and state legislature.

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  • Spider

    First Unions destroyed our industries sending them oversees because of inflated labor costs, now they asr destroying our state and municipal governments. Congress should pass this bankrupsy law for states immediately. This union stranglehold has to stop. Why should private sector employees making $15 an hour with few benifits pay more taxes to support union government employees making $45 per hour and lavish lifetime benifits?

    • scum

      It's called the free market system, bro. American industries moved their own factories overseas. And by the way, FORD just posted record numbers, and if I'm mistaken, a few of their vehicles are still built here. And why do you suddenly push for bankruptcy options for states? DO YOU NOT EVEN REMEMBER THAT ON THE TOP OF G.W. BUSH'S AGENDA WAS TO MAKE IT MORE DIFFICULT FOR INDIVIDUALS TO DECLARE BANKRUPTCY? At least be consistent ideologically, even if you remain clueless…

  • Jim

    We had unions during the 40s 50s and 60s and things were never better.

    However they were industrial unions. You are right about public employees keeping in mind teachers are not doing that well.

  • Hugh Murray

    If the states get bankruptcy laws, won't Obama make sure that money goes to the unions, and not the creditors, as happened with GM?

  • sflbib

    "In bankruptcy, municipal bondholders will — and must — be protected."

    Yes, we've got to protect those Kennedy's at all cost. Remember the impending New York City financial meltdown 20 or so years ago? In the debate over whether the federal government should bail the city out, it was discovered that the Kennedy's held some of the city's tax-free municipal bonds.

  • http://www.intellectualconservative.com Steven Laib

    The industrial unions served a purpose in obtaining safe working conditions and better pay for the workers at a time when there wasn't a true level playing field. In non-industrial situations there is no real need for unions, particularly in government employment.

    These government employee unions exist primarily for the purpose of political power. The states that won't simply tell them to take a hike deserve what they get. President Reagan had the right idea in dealing with the air traffic controllers. The states can follow his lead if they want to. After all, impossibility of performance is a defense to completing a contract. Commercial or employment contracts that lead to the death of one party should fall under that rule.

  • Quarkonntn

    Any state that cannot or will not institute reforms to avoid bankruptcy but instead relies on the federal government to pay its' obligations should revert to a territory. What is now the Canadian Province of Newfoundland and Labrador was once the independent Dominion of Newfoundland from 1907 to 1934 when it reverted to a British colony because of the Great Depression. Freckless States like California, New York or Illinois should not be allowed to elect Congressmen or Senators to vote for subsidies from more responsible jurisdictions.

  • hthangel

    The revocation of statehood is a great idea. Turning them back into federal territories would have many benefits. Imagine the US Marshall's patrolling Chicago. It just might be the tonic needed to fix that mess

  • Lady_dr

    Dick, cutting education would be GREAT! Recent studies show that most students learn very little in four years of college. And I can tell you that they often come to college with very little education when they arrive at college – hence the remedial reading classes for college freshmen.

    ACCORDING TO THE CONSTITUTION _ the Federal government has NO business being in the education business. And frankly there is a principle here – if something is free it isn't valued. Just open you eyes – an enormous number of public school students have the latest fashions, ipods, and all the latest of everything. Yet their "education" is free.

    Books have been written on why public education is bad – the bottom line – is is free and government run.

    • scum

      This just sounds like Tea Party demonology to me, nothing more…