Bankruptcy for States? BAD!
January 24 | Posted by mrossol | Party PoliticsBankruptcy to escape their debt load? Not such a good idea, these letter writers suggest…
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David Skeel’s one-size-fits-all bankruptcy option for states (“A Bankruptcy Law—Not Bailouts—for the States,” op-ed, Jan. 18) presupposes that all state pension funds are in the same financial sinkhole. Nothing could be further from the truth.
While many states have failed to meet their pension obligations, New York has not. The pension systems in states like Illinois (50.6% funding ratio) and New Jersey (62%) have fallen far below acceptable levels because those states have repeatedly failed to pay their required annual pension fund contributions. This year alone, New Jersey skipped a $3 billion payment. Payments delayed cost taxpayers more. That’s why the New York State and Local Retirement System has consistently been at or near a 100% funding ratio. We pay our bills.
Even for states in fiscal crisis like Illinois and New Jersey, proposing bankruptcy as a financial panacea is an irresponsible tactic with severe negative implications. Just the availability of a bankruptcy option and the potential bond default could severely damage state credit ratings and destroy the trust of bondholders. Our economy cannot withstand another crisis in confidence.
Bankruptcy may be presented as a painless way for states to walk away from bad fiscal management, but easy solutions are rarely the best solutions to very difficult problems. The best way for states to address their fiscal difficulties is to align recurring spending and revenue, not renege on obligations.
Thomas P. DiNapoli – State Comptroller, Albany, N.Y.
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The moral hazard in Mr. Skeel’s argument is immense. Please recall that all state and municipal bondholders are not unions or the super-wealthy. Many individuals of modest means hold state and municipal bonds. Evidently it is perfectly acceptable for these individuals to take a substantial haircut and bear the cost of state and municipal debt restructuring.
Pension fund and other state “obligations” are exactly that, obligations, on which many rely for retirement. These obligations should not be dealt with by simply wiping out those who, in good faith and with expectation of only a modest return, financed these obligations in the first place.
Stephen Clark – Bellevue, Wash.
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Why bother with bankruptcy proceedings? Just kick insolvent states out of the Union. A state would return to territorial status, thereby dissolving its government along with all of its contracts, agreements and financial obligations. The federal government would then appoint a territorial governor, disband the legislature and take over the state courts and government agencies. The entire congressional delegation would go home.
Once the citizens of the territory write a constitution with sufficient safeguards to convince Congress that this would never happen again, it could then rejoin the Union. Prof. Skeel should devote his efforts to determining what events might trigger the scenario described above and how our government should prepare for it. He should hurry. It’s probably closer than we realize.
Terry M. Bourne – Aromas, Calif.
via Letters to the Editor: Even Talk of Bankruptcy Is a Bad Solution for States – WSJ.com.
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