Although there has been no bill written or even introduced in Congress, the NY Times is reporting that back room discussions are being held about the possibility changing federal bankruptcy law to allow states to declare Chapter 9 or some form of it. While there are no specifics, as there is no bill, prominent Republicans such as Newt Gingrich are floating this as an idea to deal with bulging state obligations amid a lack of revenue:
Mr. Gingrich discussed the proposal in a Nov. 11 speech before the Institute for Policy Innovation, an anti-big-government group based in Lewisville, Texas. According to a transcript of the speech on Mr. Gingrich’s website, www.newt.org, he said: “I … hope the House Republicans are going to move a bill in the first month or so of their tenure to create a venue for state bankruptcy, so that states like California and New York and Illinois that think they’re going to come to Washington for money can be told, you know, you need to sit down with all your government employee unions and look at their health plans and their pension plans and, frankly, if they don’t want to change, our recommendation is you go into bankruptcy court and let the bankruptcy judge change it, and I would make the federal bankruptcy law prohibit tax increases as part of the solution, so no bankruptcy judge could impose a tax increase on the people of the states.”….Most of this current discussion seems to have been sparked by a column written by David Skeel for the Weekly Standard entitled "Give States a way to Go Bankrupt" although there have been discussion in the past. Personally, I don't think this has a prayer in the Senate, and while the GOP is touting it, I don't fully understand why. Although Mr. Skeel touches on the probable constitutional conflicts of this approach, it is peculiar to me that the party that often touts state's rights might be willing to push a bill that challenges state sovereignty this much. Aren't state budgets homogeneous to themselves and shouldn't they be made to meet the obligations they have made to their citizens? Regardless, this is one of the more interesting stories I have come across lately and am following it with a keen interest.
So far, proponents of the legislation said they have not yet recruited a congressional sponsor for the proposed measure. “We’re still shopping for the guy who is going to carry it,” Mr. [Grover] Norquist said.
H/T - Naked Capitalism
