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Ellen Belcher is the Dayton Daily News opinion pages editor. She writes about state government, education, the environment, higher education and all things Dayton.
Martin Gottlieb is an editorial writer and columnist for the Dayton Daily News opinion pages. He focuses on the political process itself and does such national issues as war, the economy, taxes and Social Security, as well as a hodge-podge of local and state issues.Home > Blogs > A Matter of Opinion > Archives > 2011 > January > 28 > Entry
Martin Gottlieb: Bankruptcy for states? Gingrich has tough sell
If the idea of allowing states to declare bankruptcy were to be put forth, whom would you expect to do the putting?
The states that are in the worst trouble? California, Illinois? The places that can’t imagine how they are going to get out from under their current debts?
Some particular ideological faction? Maybe the liberals, the people who have favored relatively lenient bankruptcy laws for individuals?
Well, the idea is coming from Newt Gingrich. He and former Florida Gov. Jeb Bush authored a piece in the Los Angeles Times this week making the case.
The case is primarily that the states have gotten themselves in over their heads with promised pensions and medical benefits. And bankruptcy would be the easiest way out, allowing policy to be rewritten. And it would certainly be preferable to federal bailouts.
The proposal has not exactly caught fire with the authors’ friends on the political right. House Republican Leader Eric Cantor has rejected it, saying there will be no bailouts whether bankruptcy is an option or not.
The Republican and Democratic co-chairs of the national governors association have joined forces to denounce the idea.
The treasurer of California has been in the forefront of the denouncers, saying the state has the tools it needs to address its monumental budget problems, and is using them.
The big point that opponents of bankruptcy cite is that once bankruptcy is an option, state bonds will lose their appeal to investors. Nobody will trust in states as much as in the past.
Gingrich and Bush are not quite the only ones who are thinking about bankruptcy. But some others have been decidedly discreet. Nobody wants to spook the markets, which actually have shown signs of being affected just by the rumblings.
Nobody has wanted to take such a concrete step as submitting a bill for consideration in Congress (which would have to change the law to allow for state bankruptcies). The fear is an actual bill would be more upsetting than vague rumblings.
In the discussion of states that might want to avail themselves of bankruptcy, Ohio’s name doesn’t come up. Its budget problems, severe as they are, don’t stand out. And, with the economy looking up, at least a little bit, and with the state already getting serious about the necessary task of reining in public pensions, that doesn’t seem likely to change soon.
But Ohio was a leader among states in seeking a federal bailout as part of the Obama stimulus. Gov. Ted Strickland was proud of his role. And that bailout certainly did help the state government get through the recession.
But now the political situation has changed dramatically. Republicans are in a just-say-no mood on further bailouts. That causes some of them to toy with the idea that Congress should offer the states something in lieu of money.
Texas Republican Sen. John Cornyn has raised the bankruptcy option as a possibility. He hasn’t embraced it, just raised it, asking Federal Reserve Board Chairman Ben Bernanke about it. (Bernanke said he thought the states probably already have the tools they need.)
Gingrich’s exceptional enthusiasm surely reflects his desire to undercut public employee unions. They are a generally Democratic force and have become more powerful as private-sector unions have waned. Bankruptcy proceedings would hold out the hope of undoing quickly and dramatically gains they have made through collective bargaining over decades.
Gingrich says that even in the absence of actual bankruptcy proceedings, the very existence of a law allowing for them would rein in the unions. It would make unions think about how much worse they might fare if matters proceeded to court.
Of course, Gingrich, a possible presidential candidate, is also a guy who simply enjoys being out there with big, bold new ideas. He relishes that reputation (which endears him to columnists). His conservative comrades know that about him and take him with a grain of salt.
So here we have a proposed mechanism that the country has done without for 200 years. One might think that alone would put conservatives on guard.
Congress has an easy call to make: Before taking this seriously, let’s wait until the call for a new state option comes from the actual states, as opposed to a free-floating political opinionizer.
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