Cash strapped states should have the option of declaring bankruptcy to deal with their budget crises, rather than having the federal government bail out debt-prone states in an ad hoc fashion, former Florida Gov. Jeb Bush and former House Speaker Newt Gingrich wrote today in an editorial published in the Los Angeles Times.
“The new Congress has the opportunity to prepare a fair, orderly, predictable and lawful approach to help struggling state governments address their financial challenges without resorting to wasteful bailouts,” Bush and Gingrich wrote. “This approach begins with a new chapter in the federal Bankruptcy Code that provides for voluntary bankruptcy by states, a proven option already available to all cities and towns across America.”
Bush and Gingrich pointed out that since the 1930s there has been an organized federal bankruptcy process for municipalities and a few cities, notably California’s Orange County, have gone through municipal bankruptcy and have gotten their fiscal-houses in order.
“As with municipal bankruptcy, a new bankruptcy law would allow states in default or in danger of default to reorganize their finances free from their union contractual obligations,” wrote Gingrich and Bush.
“In such a reorganization, a state could propose to terminate some, all or none of its government employee union contracts and establish new compensation rates, work rules, etc. The new law could also allow states an opportunity to reform their bloated, broken and underfunded pension systems for current and future workers. The lucrative pay and benefits packages that government employee unions have received from obliging politicians over the years are perhaps the most significant hurdles for many states trying to restore fiscal health.”
