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States Need Bankruptcy Option
Townhall.com ^ | January 26, 2011 | Dick Morris and Eileen McGann

Posted on 01/26/2011 5:14:55 AM PST by Kaslin

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.

Don't count on the unions to act responsibly unless they are forced by a bankruptcy court to do so. Look at Detroit. The teachers union is perfectly willing to let the city swoon into a death spiral -- led by its public schools -- rather than concede any of its pay, benefits, pensions and work rules won at the bargaining table.

The city has closed half of its schools and will soon close two-thirds. Class size in high school will average 62 children. But the teachers will get every dime of their bonuses, pay and pensions. The union will even continue to control health insurance, providing it to its members at a markup one-third above that of private health insurance -- paid by the taxpayer.

If the Republicans in the House just say no, Obama will use their refusal to pit them against the schoolchildren of America. He will frame the issue as Republican penury vs. the needs of our schools. And no speeches about profligate state spending will make any difference.

But if the GOP posits the alternative of a bankruptcy procedure for states, it will inject a third option -- reform. Then, if Obama demands a cash bailout and states resist the bankruptcy option, they will have forced the curtailment of state services -- not the Republican House. They will have demonstrated, conclusively, that they value the needs of their union overlords more than those of their constituents.

Finally, the Republican House should pass a state bankruptcy bill to break the political power of the unions and undermine the labor-Democratic Party coalition that does so much to animate and fund their congressional candidates. AFSME, SEIU, AFT and NEA -- the Four Horsemen of the Apocalypse -- spent a combined $200 million on politics in the last cycle.

Pass a state bankruptcy law and abrogate their contracts, and you destroy both their monopoly and their power -- and, along with it, much of the financial base of the Democratic Party.


TOPICS: Business/Economy; Culture/Society; Editorial
KEYWORDS:

1 posted on 01/26/2011 5:14:56 AM PST by Kaslin
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To: Kaslin

When GM went bankrupt, were the bond-holders protected?

If State’s bankruptcy ever seems like it makes sense, reflect for a moment on who will divide the spoils.


2 posted on 01/26/2011 5:18:06 AM PST by agere_contra (Historically every time the Left has 'expanded its moral imagination' the results have been horrific)
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To: Kaslin

Oh come on, “Education” and police services aren’t the place to start. Get rid of the programs that aren’t part and parcel of a state’s constitutional obligations.

And besides, why talk about “programs” first? Start with employment, benefits, raises, pensions. Cut marginal performers and under performers first. Who would miss them. Cut or freeze benefits and compensation, especially pensions. Tough toenails if it “hurts” some government employees. They’ve enjoyed way too much compensation/benefits vis a vis their private counterparts, and way too much job security as well. Time to shake the trees.


3 posted on 01/26/2011 5:23:45 AM PST by A_Former_Democrat (The Rodney King Riots: Courtesy of ABC, CBS, NBC & CNN)
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To: Kaslin

I would say that allowing a state to absolve itself of debt is too much of a tyranny.

The executive branch can dissolve a union. If they do not want to do that, they can force more concessions in court by demonstrating that the unions are not bargaining “in good faith”, just like the unions do to them.


4 posted on 01/26/2011 5:24:47 AM PST by fruser1
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To: Kaslin

Complete BS article, presuming that the current massive spending is all necessary.

The citizens of those states (and this country) have collectively chosen poorly and now must deal with their failure.

States like California should be forced (allowed) to resolve their own problems. Some will foolishly do anything they can to maintain spending and enter into a death spiral, others will cut spending and in doing so provide an example for others.

And the citizens of the states that have chosen wisely will reap the rewards either way.


5 posted on 01/26/2011 5:25:48 AM PST by SampleMan (If all of the people currently oppressed shared a common geography, bullets would already be flying.)
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To: Kaslin
A state bankruptcy option is bad voodoo given states have the ability now to get a grip on their fiscal apocalypse. Giving the states a bankruptcy option will set a precedence none of us want because as with the alleged bankruptcy of GM, etc., the public unions and pensions will come out of all of it virtually unscathed, bet.
6 posted on 01/26/2011 5:27:22 AM PST by cranked
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To: agere_contra
"When GM went bankrupt, were the bond-holders protected?"

There's the rub. In the GM bankruptcy many bond holders saw their life savings wiped out when the Court blatantly violated the law and gave their assets to the Unions thus rewarding the greed of the very institution which drove GM into Bankruptcy in the first place. Anyone think allowing State's into Bky court would be much different.

7 posted on 01/26/2011 5:29:28 AM PST by circlecity
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To: SampleMan
Complete BS article

Yes, it is.

Defund collectives. The laboratories of democracy have become the stomping gounds for collectivists/socialists/totalitarians and any other labe you want to stick on anti-individual gangs.

8 posted on 01/26/2011 5:30:55 AM PST by PGalt
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To: Kaslin

Only Goldman Sachs and JP Morgan are protected against BK - everyone else is on their own.


9 posted on 01/26/2011 5:31:49 AM PST by jd777
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To: PGalt

The monster is so bloated it cannot stand upright by itself anymore....lets start with schools..

when did the local school become a restaurant???Feeding breakfast and lunch to school kiddies on the government dime? All meticulously and lovingly hand prepared by government (union) officals....close the kitchens, layoff all kitchen workers, and tell mommy or daddy to drag their butts out of bed, cook breakfast and pack lunch for their kids.....enormous savings right there....

when did the school have to hire limosine services for the kiddies? Privitize this crap right now, and save tons of cash......

most large corporations oursource janitorial services...why not schools???

how many adminsitrators does it take to run an elementary school....back in my day a principal, vice principal and 2 secretaries did the job....now you have 3 times this many people.....

tons of savings right here without even going into teachers salary...that could be step 2


10 posted on 01/26/2011 5:46:29 AM PST by joe fonebone (The House has oversight of the Judiciary...why are the rogue judges not being impeached?)
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To: Kaslin

Dick Morris sounds like the Big Government guy he has always been.

We need to force the politicians to cut expenses and if the politicians start playing games as to which expenses are cut, then the voters need to clean house and put in a new slate of officers who will do the job right.

The scorecard now reads Morris and Gingrich as big advocates of big government. Who else is going to join the “shunned by conservatives” list?:


11 posted on 01/26/2011 5:46:29 AM PST by Presbyterian Reporter
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To: joe fonebone

-——back in my day a principal, vice principal and 2 secretaries did the job-——

You misunderstand the system. The system exists to pay educators, not to educate children.

Children are merely cannon fodder

America has no education system, it has an educator system


12 posted on 01/26/2011 5:49:44 AM PST by bert (K.E. N.P. N.C. D.E. +12 .....( History is a process, not an event ))
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To: SampleMan

I was going to post what you posted, almost word for word. Thanks for saving me the trouble. It is, indeed, BS.


13 posted on 01/26/2011 5:55:22 AM PST by CitizenUSA (Coming soon! DADT...for Christians.)
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To: bert

“”The system exists to pay educators, not to educate children. Children are merely cannon fodder. America has no education system, it has an educator system””

Thanks for the reminder regarding the US school system.


14 posted on 01/26/2011 6:15:19 AM PST by Presbyterian Reporter
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To: Kaslin

bankruptcy is meaningless for a state.

they can simply renounce their debt.
nobody can do anything to the state.


15 posted on 01/26/2011 6:23:10 AM PST by Talf
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To: SampleMan
The article doesn't actually propose letting the states out of their debts. It suggests letting them void existing labor contracts and go back to the bargaining table with the unions. Those contracts represent a different kind of debt that the state has incurred. I think state employee unions generally have far too much power, but I'm not sure there is a sound reason to let the states get out of one type of liability while not allowing any flexibility on the rest.

However, it does seem that when it goes to the courts, the union members usually make out better than nameless investors holding bonds.

16 posted on 01/26/2011 6:52:26 AM PST by untrained skeptic
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To: Kaslin

State bankruptcy throws off the shackles for demanding responsible fiscal behavior for the states. Just as many individuals will be irresponsible, so will states - already California and Illinois, along with others, have been irresponsible without a promise of bankruptcy. And think about the Federal government mandates to the states where Federal spending can be off-loaded down to the state level and eliminated like a flush of the toilet through state bankruptcy.

Finally, worst of all, this is another ruse whereby wealth can be redistributed to Federal liking. Think of all the pension funds and investors in GM who lost money when the Federal government swiped their equity and gave it to the UAW and the US government. The same kind of entities, companies and individuals invest in obligations of states as well. Bankrupcy courts could just cancel those obligations and transfer that wealth back to the states, or holders of state obligations that those in power like better.

State bankrupty is not just a horrible and atrocious idea, it is raw evil at work.


17 posted on 01/26/2011 6:55:42 AM PST by RatRipper (I'll ride a turtle to work every day before I buy anything from Government Motors.)
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To: Kaslin

Or, you know, the states could sell off assets!

Why are we discussing the bankruptcy of states when those states own a lot of property that could be sold before they have nothing left?

More of the idiotic group-think from the usual suspects.

People tend to get the government they deserve.


18 posted on 01/26/2011 7:05:21 AM PST by MichiganConservative (Terrorists don't commit genocide. That's what governments do.)
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To: Kaslin
...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.

Give me a break. Nanny government won't be able to pay for it, so you'll go through life ignorant and uneducated?

Given the state of education institutions in this country, this option might not be all that bad.

19 posted on 01/26/2011 7:08:32 AM PST by MichiganConservative (Terrorists don't commit genocide. That's what governments do.)
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To: Kaslin
...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.

Give me a break. Nanny government won't be able to pay for it, so you'll go through life ignorant and uneducated?

Given the state of education institutions in this country, this option might not be all that bad.

20 posted on 01/26/2011 7:08:43 AM PST by MichiganConservative (Terrorists don't commit genocide. That's what governments do.)
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To: joe fonebone

joe fonebone for education czar during a transition phase leading to the dismantling of the Department of Education (and even more savings)!


21 posted on 01/26/2011 7:08:56 AM PST by PGalt
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To: untrained skeptic

Yes, the unions are the first place to start.


22 posted on 01/26/2011 7:10:26 AM PST by ▀udda▀udd (7 days - 7 ways Guero >>> with a floating, shifting, ever changing persona.....)
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To: Kaslin

“The city has closed half of its schools and will soon close two-thirds. Class size in high school will average 62 children. But the teachers will get every dime of their bonuses, pay and pensions. The union will even continue to control health insurance, providing it to its members at a markup one-third above that of private health insurance — paid by the taxpayer.”

I like ole Dick Morris and I hope the Feds enable, through appropriate legislation, bankruptcy for states and cities. That said, ole Dick is engaging in some hyperbole here. As every experienced businessman knows, “when a businessman’s business (the states/cities in this case) runs out of money, bankruptcy is a total waste of time and attorneys fees”. Just shut off the phones, faxes and email and move out of your offices with NO forwarding address and go start up another business!

Only about 3 out of every 100 creditors will EVER catch up to you and you settle with them...........over time, indeed “a long time”. That is the brutal truth about a “failed” business. The “pain” is spread out over all those unfortunate enough to have gotten sucked in.

Judges ordered Pritchard, Alabama City officials to pay up under threat of contempt of court..........the “officials”, sitting on over-drawn checking accounts, just laughed at them and said “with what”................

Along about that time, a union employee looking in the mailbox for his pension check, and who was only in his fifties, killed himself. He will be forgotten and the politicians and their union thug buddies will continue lying to their minions until the money just simply isn’t there. Then what? I don’t know but I have been around long enough to remember the Marines in Los Angeles and the Army in Detroit. Both under heavy gun fire and buildings burning and scores dead.


23 posted on 01/26/2011 7:17:45 AM PST by Cen-Tejas
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To: Kaslin
If the Republicans in the House just say no, Obama will use their refusal to pit them against the schoolchildren of America. He will frame the issue as Republican penury vs. the needs of our schools. And no speeches about profligate state spending will make any difference.

If he is correct about this, the middle class has to look to itself as the reason the government keeps growing.

How many of the functions of government (state and federal) do you support that have no constitutional basis?

You can take it a step further and ask yourself whether those functions are violations of someone's property rights or would be more efficiently done by someone in the private sector.

24 posted on 01/26/2011 7:19:01 AM PST by MichiganConservative (Terrorists don't commit genocide. That's what governments do.)
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To: A_Former_Democrat
Oh come on, “Education” and police services aren’t the place to start.

Congratulations for being the first to point out that idiotic Hobson's Choice.

These are the natural places to start to pressure the sheeple to elect politicians to raise taxes.

Not only are the goody-goody union contracts left untouched, but so are lots of other schemes to buy influence such as "investing" in new downtown buildings for fascist style alliances with those well-placed in the business community, building expensive new sports palaces for owners who could easily afford to do their own and the general WAM (walking around money) mentality which put Pennsylvania so deep in the red after eight years of misrule by Rendell's regime.

Here in our county, we have two contrasts in reaction to state funding cuts:

  1. Our library who insists on remaining closed on Fridays and Federal Holidays despite a more than ample supply of volunteers willing and able to staff and keep it open. This is despite a small cut in state aid.
  2. A historic battlefield from the French and Indian War with a great museum which remains open and operates normally despite a total cut in state aid.

I'll give you three guesses as to which is staffed by AFSCME employees.

25 posted on 01/26/2011 7:20:28 AM PST by Vigilanteman (Obama: Fake black man. Fake Messiah. Fake American. How many fakes can you fit in one Zer0?)
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To: agere_contra
...reflect for a moment on who will divide the spoils.

Who would that be? The federal government seems to be the logical answer. Under what authority would it be done? On paper, the federal government is just a creation of sovereign states and a lesser entity than any one state. How's that gonna work?

What precedent is there for this? I can think of only Reconstruction. Lincoln set up a military dictatorship in the South.

Let's see Obama set up a military dictatorship in Illinois and California.

They would definitely deserve it.

26 posted on 01/26/2011 7:22:05 AM PST by MichiganConservative (Terrorists don't commit genocide. That's what governments do.)
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To: joe fonebone
how many administrators does it take to run an elementary school....back in my day a principal, vice principal and 2 secretaries did the job....now you have 3 times this many people.....

Only three times as many? Hell, in many districts in Pennsylvania, the number of administrative personnel almost equals the number of classroom teachers.

My high school (1973 graduate) had about 800 kids and was exactly as you describe. In a pinch, the principal could teach math, and was quite good at it. The vice principal could teach science and lets just say it was easy to see why he became an administrator.

27 posted on 01/26/2011 7:26:16 AM PST by Vigilanteman (Obama: Fake black man. Fake Messiah. Fake American. How many fakes can you fit in one Zer0?)
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To: SampleMan

States like California should be forced (allowed) to resolve their own problems.


The “BS article” proposes simply to give them an additional option. Did you read it?


28 posted on 01/26/2011 7:44:18 AM PST by Atlas Sneezed ("If you touch my junk, I'm gonna have you arrested.")
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To: RatRipper

“”State bankrupty is not just a horrible and atrocious idea, it is raw evil at work.””

Well stated my friend.


29 posted on 01/26/2011 8:57:58 AM PST by Presbyterian Reporter
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To: Beelzebubba
The “BS article” proposes simply to give them an additional option. Did you read it?

That option being to take the bankruptcy process as a cafeteria selection and pick out what is beneficial to them.

Why should the obligations of the state of California be wiped away? So what, the Dims get to buy voters for 50 years and then when the bills drive them to the poor house, the mean Republicans come in and save the day by taking away the fairly negotiated benefits?

No, I'm afraid that I did indeed read the article and find it a cop out. Let them deal with the Leftist results of their Leftist policies. There is no need for federal intervention here.

If a Leftist state suffers the consequences of its Leftist choices, all the better example to the rest of the nation.

30 posted on 01/26/2011 9:49:04 AM PST by SampleMan (If all of the people currently oppressed shared a common geography, bullets would already be flying.)
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To: A_Former_Democrat

The reason those are always the first to get cut is that people will scream the loudest about it.

When I had a poll taker ask about proposed cuts to the police force, I said “OK, what else?”

Kind of shocked her. There are places to cut, but by bringing out the cops and teachers first, most sheep will knuckle under and pay more taxes.


31 posted on 01/26/2011 10:00:50 AM PST by redgolum ("God is dead" -- Nietzsche. "Nietzsche is dead" -- God.)
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To: Beelzebubba; untrained skeptic

What I believe you are both missing is that these states are not locked into these outrageous contracts forever, just until they come up for renewel. They are then free to renogiate or even to pass legislation disallowing public sector unions.

The Leftists in these states are now stuck in the unfavorable position of telling their paid constituancy “No more graveytrain” or continuing the death spiral. A choice ultimately up to the voters of that state.

If you give them this “third way”. They will renig on the outrageous promises they made to get elected without paying a political price.

All of the Republicans and just enough Dims will vote to renig on the contracts, along with a Dim Gov. The Republicans will then be demonized, the Dim Gov. exchanged for a new Dim Gov., and the Leftists will gain ground in the next election promising to give back what was taken from the poor unions.

Even a total death spiral would be benecial to the rest of the country. Perhaps a failed bond offering and no state checks in California would have a sobering effect across the nation. It would also pave the path concerning what actually constitutes necessary government spending.


32 posted on 01/26/2011 10:07:28 AM PST by SampleMan (If all of the people currently oppressed shared a common geography, bullets would already be flying.)
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To: SampleMan
What I believe you are both missing is that these states are not locked into these outrageous contracts forever, just until they come up for renewel. They are then free to renogiate or even to pass legislation disallowing public sector unions.

I'm not missing it. A five year contract foolishly negotiated by an administration that was pandering for votes means that even if you replace the administration, there is little they can do to address the problem.

They are the people's elected officials and the people gave them the authority to negotiate those contracts. Bankruptcy is a process through which someone can gain relief when it is no longer possible for them to fulfill their obligations.

I believe bankruptcy has a place in our society, but it must be as fair and equitable as possible. Having union contracts be the ONLY obligation that can be renegotiated doesn't seem fair.

This doesn't seem like the proper way to limit the power of unions. You shouldn't limit power by giving the government power to negotiate in bad faith and then back out.

33 posted on 01/26/2011 1:36:27 PM PST by untrained skeptic
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To: untrained skeptic
They are the people's elected officials and the people gave them the authority to negotiate those contracts. Bankruptcy is a process through which someone can gain relief when it is no longer possible for them to fulfill their obligations.

As a taxing authority with a great deal of leeway in how they spend the majority of their funds, they can fulfill their obligations. They just can't do it and do all of the other things they want to do.

I believe bankruptcy has a place in our society, but it must be as fair and equitable as possible. Having union contracts be the ONLY obligation that can be renegotiated doesn't seem fair.

All contractual obligations are equal, but there are no contractual obligations for the majority of the state's spending. The voters of those states chose political leadership that promised them a free lunch. Now those voters will have to pay for their bad choices.

This doesn't seem like the proper way to limit the power of unions. You shouldn't limit power by giving the government power to negotiate in bad faith and then back out.

Precisely! The public union sector will only be dealt with when the majority of people are drug to the conclusion that they can't afford them and their "evil" rich and corps can't afford them either.

The last thing we should do is bail out bad Dim decisions.

34 posted on 01/27/2011 6:19:34 AM PST by SampleMan (If all of the people currently oppressed shared a common geography, bullets would already be flying.)
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To: untrained skeptic
Although all contracts are equally valid, not all contracts have the same claim on assets.

In normal bankruptcy (not run by Obama) employees have first dibs on the assets of the entity to cover compensation for work already done. Second are the parties owed monies for work or goods delivered. Third are the entities debt holders. And last are stock holders.

In the case of states, stock holders do not exist, but another party does. That is the citizenry of the state. They are held accountable to meet the obligations of the state with their personal funds. Now the courts cannot legally raise taxes, but they can direct available funds once collected.

These state failures have the potential of turning a large number of people into economic conservatives. And in truth, that is the only thing that can ultimately solve their problems.

35 posted on 01/27/2011 6:32:13 AM PST by SampleMan (If all of the people currently oppressed shared a common geography, bullets would already be flying.)
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