Helping The States…Into Bankruptcy
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Some of the largest states are effectively broke. The Congress will not permit any bailouts, no matter how loud the groaning and weeping, and voters won’t approve tax hikes anywhere given the massive amount of perceived waste that hasn’t been attacked.
See my interview with Budget Chair Paul Ryan for confirmation of this hard, unchangeable fact. I asked Ryan “[w]hat’s the message to those governors in California, Illinois, New York, where they’re broke [and come to D.C. for bailouts]?”
Ryan answered: “Get a round-trip ticket.”
“Look,” Ryan continued, “and no offense to Californians, but those of us from more frugal states, we’re not interested in bailing out people from reckless states.”
This is the way it is. D.C. isn’t bailing out the states, but the Congress can provide some crucial tools for the states to use in digging out of their deep, deep holes.
States cannot declare bankruptcy –yet. But as this New York Times story notes, many in Congress know that the states need exactly what GM got last year, which is the right to walk away from killer contracts. GM didn’t take much from its unions and put most of the burden of restructuring on its bondholders, where states must almost certainly adopt the reverse approach, gaining relief from its gargantuan public employee union contracts while doing the best it can by its bondholders in the hope of maintaining credibility in the marketplace for future public credit needs.
Jerry Brown looks like he has begun the kabuki dance to the bankruptcy court by first ordering some cuts and then appealing to voters for a tax hike which will fail. (Very few people believe that a tax hike will pass. California is taxed out and any marginal burden will send high income residents and moire businesses fleeing.)
There is as yet no way for the states to file for reorganization, so Congress needs to hurry up. I will ask Congressman John Campbell of the House Financial Services Committee about this today, but there is no other way to proceed except for a reset. The Congress isn’t going to print money for the states to pay their union bills. It is that simple.
UPDATE: Congressman Ryan will provide the GOP’s response after the president’s State of the Union speech, so the transcript of my hour-long conversation with him broadcast on January 5 might be of interest to folks digging up background on the Wisconsin Congressman. The audio is available at The Hughniverse.