GOP Split On Bankruptcy For States

The Hill:
A split between prominent Republicans emerged Thursday over whether Congress should allow states to declare bankruptcy.

Former House Speaker Newt Gingrich (R-Ga.) wrote in the Los Angeles Times that Congress should authorize a new law allowing states to declare bankruptcy, a move that House Majority Leader Eric Cantor (R-Va.) has derided as a “bailout of the states.”

Gingrich, who is mulling a bid for the Republican presidential nomination in 2012, wrote the op-ed with another prominent Republican, former Florida Gov. Jeb Bush, the brother of former President George W. Bush.

“The new Congress has the opportunity to prepare a fair, orderly, predictable and lawful approach to help struggling state governments address their financial challenges without resorting to wasteful bailouts,” Gingrich and Bush wrote. “This approach begins with a new chapter in the federal Bankruptcy Code that provides for voluntary bankruptcy by states, a proven option already available to all cities and towns across America.”
Gingrich has previously floated the idea of state bankruptcy, but publicly pushed the option again after Cantor all but ruled it out earlier this week. That Bush signed onto the article could add significant heft to the option among conservatives. Sen. John Cornyn (R-Texas) flagged the article on his Twitter account on Thursday.
“I think some … have mentioned this Chapter 9 equivalent for states is somehow going to stave off some kind of federal bailout — we don’t need that to stave off a federal bailout. There will be no bailout of the states,” Cantor told reporters earlier this week. “States can deal with this, and have the ability to do so on their own.”

At issue are the massive amounts of debt that some state have accrued after years of running deficits. The existing state debts are only exacerbated by massive liabilities in state pension accounts in coming years, which have made it difficult for states to meet their obligations.

A new bankruptcy law would allow states to enter court protection to help reorganize their finances. The New York Times has reported on the political sensitivities surrounding the situation, and most lawmakers have been careful not to stake out positions on the possible solution.

Gingrich was more pointed, however, and it is notable his op-ed ran in a newspaper in California, the state facing perhaps the most intense budget crisis.

“Federal bailouts must come to an end. Federal taxpayers in states that balance their budgets should not have to bail out the irresponsible, pandering politicians who cannot balance their budgets,” Gingrich and Bush wrote. “Congress must allow a safe, orderly way under federal bankruptcy law for states to reorganize their finances.”

Republican governors like Chris Christie in New Jersey have scored political points for taking on local unions and seeking concessions in the state’s pension liabilities. Ohio Gov. John Kasich, also a Republican, has sought similar reforms, as have some new Democratic governors. These moves have been met with stiff resistance by labor unions that represent state and municipal employees, who worry their workers will be shortchanged by state budget crunches.

Posted By Pat Dollard.