Congress considering bankruptcy option for states, not just cities

Those of us who have even a brief history in business economics understand you can’t make promises that are unsustainable. You’d have to be a fool to make a business decision now, that would result in undetermined future liabilities decades in advance. That’s exactly what our municipalities, cities and states have done.

The pensions are a huge issue. Certainly, employers contributed to their own pensions in one way or another, but unless some sort of miracle happens, most of the liabilities will remain unfunded and there simply will be no money left for payouts.

You’ve heard about cities considering bankruptcy, which would allow them to reconfigure the current liabilities into something that might be sustainable. I simply do not think this is possible. How the heck would anyone be able to even come close to figuring out how much health care will cost in 20 to 30 years? The cost of living? No way would I want to take that business gamble.

But the our states have been at the black jack table gambling for years. We’re crushing the future for generations of Americans by handing them this burden.

From the New York Times.

Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.

But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.

Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.

I really don’t think the bankruptcy route is an option for states, but I’m no expert. I’d much rather see the states pop a reality pill and deal with the issue at hand. Over a period of time, public pensions must end and be replaced by personal financial planning and self-responsibility.

The federal government could set a good example by actually dealing with a very similar problem … Social Security.

5 replies
  1. joe_m
    joe_m says:

    "see the states pop a reality pill and deal with the issue at hand" – great example of oxymoron

    Neither the cities, states or the feds will ever "pop a reality pill".

    Time for us peons to storm the seats of government and drag the politician out and give them a good old tar and feathering.

    Is that inciteful speach or insightful speach?

  2. Marilyn
    Marilyn says:

    Yesterday's WSJ had an article on "The Utah Pension Model"  All new state employees will have 401K's.  I believe this benefits everyone.  The employee takes their 401k if they leave, politicians can no longer steal from the pension plan for other gov. spending, taxpayers no longer risk higher taxes if the stock market declines.  The only ones who didn't like it were the Union leaders—go figure.

  3. Lynn
    Lynn says:

    NY Times"to change that status would have to clear high constitutional hurdles because the states are considered sovereign" So they want to bail states out of bankruptcy because they are sovereign, but we want the sovereign states to be forced to have the idiotic Healthcare Reform?

  4. Lynn
    Lynn says:

    Yeah Sammy, follow the dots. That's why HCR was repealed by the House. But the Dems own the Senate so they won't bother about the sovereign states or the WILL of the people. We will have to dismantle that horrendous package piece by piece and replace it with bills that truly help reform healthcare. That same ridiculous Senate will probably disregard the people again and bail out the fiscally irresponsible states.

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