Path Is Sought for States to Escape Debt Burdens

[NeoConsSuck]

Source: NY Times

Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.

Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.

But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.

Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors.



Read more: http://www.nytimes.com/2011/01/21/business/economy/21bankruptcy.html?hp

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And it all started here:

http://blogs.reuters.com/james-pethokoukis/2010/12/07/secret-gop-plan-push-states-to-declare-bankruptcy-and-smash-unions/

[totodeinhere]

1. This is part of the plan to bust public employee unions.

A state declares bankruptcy and then they don't have to honor contracts with public employees and they can kiss their pensions goodbye.

[freshwest]

2. Not only that, but to privatize and surrender to corporate fiefdoms.

[XemaSab]

4. I believe in unions and I believe in retirement

but I cannot for the life of me understand why California's tax dollars are going to pay my uncle $100,000 a year for the rest of his life to live in Colorado.

That seems messed up to me.

[PSPS]

6. Maybe they are, maybe they aren't. You need to provide more detail.

I can envision many scenarios that would yield a $100K/year pension. For example, after many years of service in a high-paying position during which the person paid into their pension.

[Pale Blue Dot]

10. Yes, I would also like to hear more details.

I'm a CT teacher, and therefore I don't qualify for Social Security. My state pension is all I have. I get that pension for my service to the state regardless of where I live after I retire.

This sound suspiciously like a right wing talking point.

[ClassWarrior]

3. Another Con job. Here's the expose from Truthout.org...

http://www.truth-out.org/understanding-the-attacks-on-public-employees66727

NGU.

[sendero]

17. I'd like to agree with this..

... but I can't. Is it true that employee salaries and pensions have little to do with the mess the states are in? Well, yes it is SOMEWHAT true. States have taken a huge revenue hit, and that is not the fault of the workers.

But here is the problem - the states have taken a huge revenue hit, and you folks think that one of their greatest expenses is not going to be affected? Exactly where do you think the money should come from - raise taxes on everyone else to pay salaries and benefits that most people don't even have?

Keep dreaming.

[Skink]

5. we could let states run deficits.

[Volaris]

7. or we could try raising taxes

on the people who can afford it, to pay off the debts we have accumulated, that would help too....

[jwirr]

8. My daughter was talking to me about the deficit. She wondered

why we could not just have everyone pay 1% of their income toward paying it off until it was paid. We wanted to send our 1% to President Obama. This would also work for the states. She wanted me to ask DU what they thought. Kind of a "We Love America" telethon.

[Psephos]

12. It sounds like you're talking about the national debt, not states' debts.

States, not the Federal Government, are responsible for their pension and benefits arrangements with their employees.

Now, to address your daughter's suggestion, first remember that the deficit is the difference in one year's budget between money coming in, and money going out.

The national debt is the total sum of all the deficits from the past, minus the surpluses.

That said, the national debt is currently almost exactly $45,000 per person in the US (adults, children, babies, elderly, every person).

To pay off $45,000 at 1% per year of income means each person would, in total, be paying 1% of $4,500,000 of income. Most people will not make $4,500,000 in their lifetime. US per capita income is $40,000.

But it gets worse. The debt must be financed with interest payments. Because of lucky factors, such as the dollar being a "reserve currency," and other advantages, the US government pays less interest than other borrowers, but even so, must pay at least 3% annually on debt principal. Which means that, to actually reduce principal, not only must the budget be balanced, but debt payments must then be in addition to the 3% debt interest payment. This is not currently happening, or even remotely close.

In short, everyone paying an additional 1% per year toward debt retirement would just about cover the current interest payment alone, and subtract nothing from the principal. And that would mean EVERYONE (babies, prisoners, great-grandmas) would be paying. In actual practice, only about half the people in the US have an income-earning job...which means they have to make up the difference for those who don't have income.

The national debt situation currently is the same as having a maxed-out credit card, and struggling to pay just the interest each month. Forget pipe dreams of paying the card off - the immediate problem is, what happens if the interest rate on that card gets raised?

The answer is: the same thing that happens if global lenders decide the US should be paying more than 3% on the national debt.

[trud]

15. "We Love America" telethon.

I'm already paying my state a fortune in taxes compared to my income. I have no intention of sending one cent extra, especially when the federal government is expletive deleted away hundreds of billions a year on wars.

[Historic NY]

9. They better be prepared for pitchforks & torchs coming over the barricades.

[sarcasmo]

18. Exactly, if they mess with the retirees pensions imagine the chaos. This might be the breaking

point.

[DeSwiss]

11. K&R

States already have a means to resolve these problems. It's called TAXATION. Only problem is, they're afraid to use it because that's how the politicians get the bribes campaign contributions from the rich corporations so they can keep their jobs. The other way is to do things lie shutting down medical transplant programs and letting people die.

- Which is apparently more politically palatable these days.....

[Sen. Walter Sobchak]

13. the problem is, by any measure...

these states are thoroughly insolvent, so if not bankruptcy?

[trud]

14. hurray for this

Where I live, public employees can retire in their 40s and get 80% of their salary as a pension, and pay a pittance for healthcare for the rest of their lives. There are no restrictions on their going to work again for the state, so it is not unusual for someone to be drawing a pension and also a full salary which counts towards another pension.

Meanwhile the taxpayers, who are almost entirely blue collar and lower middle class, are being devastated by the high property taxes that pay for this. Not so far off, the cities, towns, and state will collapse financially because this is unsustainable.

I only hope that when this happens (1) ordinary decent working people have not been ruined by the confiscatory property taxes, and (2) the public employees wind up without a dime of further money.

[Dappleganger]

16. You're talking about double-dipping...

and your politicians need to address this in their state legislature. It's not illegal but can be a large burden on the state. There are good people who voluntarily refuse to double-dip but there are plenty of folks who believe it is their right. I don't think it's a clear-cut issue in many cases (which is why so many do it).

What really needs to happen is for the state to raise big business capital gains taxes (not on small business) and stop giving huge tax breaks to companies who take everything they can get for 3 years then pull up their tent stakes and move to China. If those loopholes were removed the tax coffers would increase a hell of a lot.

[sarcasmo]

19. Really? Do you know how many people rely on their pensions to survive?

[MadMaddie]

20. They have made it more difficult for average citizens

to get out under the debt they are under so I say screw the states they shouldn't have it any easier than any of their citizens.