Sunday, February 27, 2011

State of Bankruptcy

It worked for General Motors, sort of. It took a Chapter 11 reorganization to get the worst of GM's unfunded liabilities cut down to a managable size. Lots of people cheered for that one. Why not do the same for states? Taxpayers are getting crushed by the same uncontrolled expenses that will increase rapidly forever. The retiree healthcare and pension expenses for New York State already put it in far worse shape that General Motors was ever in.

Therefore, states should lay their cards on the table. Either taxes must go to the moon, which will force states into insolvency just as GM was, or the unfunded liabilities must be reduced. The obvious choice is to cut the benefits.

Governors Blast State Bankruptcy Option

Governors slammed Congressional talks on allowing states to declare bankruptcy at bipartisan meeting Saturday.

“We don’t even want this subject discussed,” said Washington Gov. Christine Gregoire, a democrat, at a National Governors Association meeting in Washington, D.C. “We’d like the leaders of Congress to say it’s dead.”

Congress has held a handful of hearings on the proposal of allowing states to declare bankruptcy. Such an option would help states mend their finances, proponents argue, in part by relieving them of debt and pension obligations.

Members of Congress on both sides of the aisle have panned the idea. And though states are facing budget gaps and $1 trillion or more in pension liabilities, none of them have asked for — nor do they want — the bankruptcy option, Gregoire reiterated Saturday.

“This is some of the most dangerous discussion that we’ve had, in political terms, in a long time,” added Connecticut Gov. Dan Malloy, a democrat.

He and Gregoire pointed out that talks of bankruptcy are damaging to the minicipal bond markets and increase the cost of borrowing for states.

“You’re talking about the drying up of capital for every single public works project,” Mr. Malloy said. “It just would be the height of insanity.”

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