Newt Gingrich and Jeb Bush are right about state bankruptcy as one way to deal with rapacious government unions.
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Of the 14 missing Democrat state senators, at least half would be subject to immediate recall this year, maybe more. While efforts to recall U.S. Senators under such state law provisions have been subject to legal controversy, there is no legal controversy about the authority of voters to recall state senators under such provisions.
Clearly, what Governor Walker is asking for to balance the state’s budget is quite reasonable. Indeed, it is long overdue. For those anti-democracy Democrat state senators who refuse to even allow a vote on the measure by failing to show up and do their duty, the Wisconsin Tea Party should begin the process of recall under state law now. Voters whether liberal or conservative should not abide anti-democratic state senators who shut down the legislature altogether by refusing even to show up to for work.
Pending that, the state’s Senate Majority Leader should declare the seats of the senators who continue to fail to show up vacant. The Senate should then proceed to adopt new proportional quorum rules based on the number of seats that have not been vacated, and then go ahead and pass the Governor’s budget proposals. The Senate should then proceed to other state business.
If the AWOL senators don’t like it, they can sue.
State Bankruptcy: For Everything There Is a Season
What is at stake in Wisconsin is whether public servants work for the people, or whether the people work to serve a government bureaucrat aristocracy. The recent experience in Wisconsin shows the wisdom of the proposal made earlier this year by former House Speaker Newt Gingrich and former Florida Governor Jeb Bush to allow states to file for bankruptcy.
The U.S. Constitution explicitly gives Congress the authority to provide for bankruptcy law. That is because as the Founding Fathers recognized, bankruptcy allowing those who have hopelessly indebted themselves to start over is not an immoral dodge, but good public policy. Pursuant to this authority, the U.S. Bankruptcy Code has provided the option for local government authorities, including cities and counties, to file for bankruptcy since 1934. As Gingrich and Bush have argued, the time has come to extend this option to state governments as well.
Criticism of their proposal has arisen due to failure to understand what bankruptcy means, and a rush to judgment before considering the details of the proposal. Amending the U.S. Bankruptcy Code to provide for state bankruptcy would mean foreclosure of any option of a federal taxpayer bailout for irresponsible spendthrift liberal states.
Under the Gingrich/Bush proposal, bankruptcy would be solely at the option of the governing state authorities. States could not be forced into bankruptcy by any creditors. Moreover, federal bankruptcy judges would not have the power to order a state to do anything. That would violate state sovereignty and democratic control by the voters. The federal law would specifically indicate that no judicial bankruptcy decree for any state could provide for a tax increase. That would take us all the way back to taxation without representation, which we fought a war to overturn.
States that wanted to exercise this new bankruptcy option would file a plan of reorganization with a federal bankruptcy court. The plan of reorganization would specify how the state’s debt obligations would be readjusted and then paid off, including possible reductions or cancellations of outstanding obligations or debts as in any bankruptcy. The only requirement on the plan of reorganization, besides no tax increases, is that all creditors within the same class of priority would have to be treated equally within the usual established rules for all other bankruptcies.
The highest level of priority would be for bondholders, so that a state could file for bankruptcy without nullifying any outstanding bonds, which would preserve the state’s ability to borrow in the future when necessary and desirable. This would also help to avoid disruption in state bond markets. Note that municipal bond markets have continued to function over many years even with the possibility of municipal bankruptcy under federal law. The great majority of state and local bonds are, in fact, municipal bonds, which have long been subject to federal bankruptcy law. Extending the option of bankruptcy to states would consequently not newly threaten municipal bonds, as critics have wrongly suggested.
The second level of priority under state bankruptcy would be for vendors and contractors to the state. That would maintain some protection even in bankruptcy for vendors and contractors to be paid who have provided goods and services to the state, or at least be paid equally and proportionally with others.
The third level of priority would be for union contracts. This would empower states to rewrite onerous public pension obligations, or to freeze salaries and pay contrary to any outstanding contractual obligations. I know this is necessary from personal experience with state government pension reform efforts, where we have been told that no reforms can affect current state workers because of outstanding union contracts.
The point of state bankruptcy, therefore, is not to dodge state debts, as critics have also wrongly suggested. It is to grant states new powers to deal with rapacious government bureaucrat unions. Wall Street bankers have already run to Congress crying that state bankruptcy would imperil their bond holdings. These bankers are another class of aristocrats, some of whom run to Congress every 10 years crying that unless they are bailed out and enabled to continue to enjoy their fat cat lifestyle at taxpayer expense, the economy will crash. What is in their future in the next Administration is the permanent end of such Too Big To Fail bailouts, rather than their institutionalization as in Obama’s Dodd Frank Financial Regulation legislation. This would be accomplished through another Bankruptcy Code amendment providing for the rapid liquidation of bankrupt Wall Street banks, which would protect the broader economy. What is needed is one big Wall Street bank bankruptcy to prove the end of Too Big To Fail. I can’t wait for that.
The federal judge in state bankruptcy would have the power solely to accept or reject the state’s plan of reorganization. If the judge accepted the plan, it would have the force of law, reordering the state’s obligations and debts as provided. If the judge rejected the plan, he would have to issue an opinion explaining why. The state could then try again.
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