Mary Williams Walsh‘s front-page story about “state bankruptcy” reminded us of the combination of dithering leadership and intransigent special interests that brought the ancien régime to its knees in 1789 (curiously, the first full year of governance under our current Constitution).

House Republicans, and Senators from both parties, have taken an interest in the issue, with nudging from bankruptcy lawyers and a former House speaker, Newt Gingrich, who could be a Republican presidential candidate. It would be difficult to get a bill through Congress, not only because of the constitutional questions and the complexities of bankruptcy law, but also because of fears that even talk of such a law could make the states’ problems worse.

Lawmakers might decide to stop short of a full-blown bankruptcy proposal and establish instead some sort of oversight panel for distressed states, akin to the Municipal Assistance Corporation, which helped New York City during its fiscal crisis of 1975.

Still, discussions about something as far-reaching as bankruptcy could give governors and others more leverage in bargaining with unionized public workers.

“They are readying a massive assault on us,” said Charles M. Loveless, legislative director of the American Federation of State, County and Municipal Employees. “We’re taking this very seriously.”

[snip]

Many analysts say they consider a bond default by any state extremely unlikely, but they also say that when politicians take an interest in the bond market, surprises are apt to follow.

Public-sector workers versus municipal bondholders: a hardly unimaginable fight that no one seems to want to be bothered to imagine.

Drop me a line at rjk@dailyblague.com
This entry was posted on Friday, January 21st, 2011 at 10:30 am.